What changed in this filing

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Item 1A. Risk Factors

2023-03-09 compared with 2022-03-17 · 127 added, 119 removed, 658 unchanged (27% of the section changed)

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We continually execute a number of growth initiatives, strategies and operating plans designed to enhance our business.

For example, our strategy includes recruiting new clinicians, growing our business by opening de novo centers, acquiring high-quality existing centers, building our relationships with payors and developing strategic relationships with other primary care and specialist physicians to offer an integrated care model.

For example, our strategy includes recruiting new clinicians, growing our business by opening de novo centers, building our relationships with payors and developing strategic relationships with other primary care and specialist physicians to offer an integrated care model and acquiring strategic high-quality existing centers.

The anticipated benefits from these efforts are based on several assumptions that may prove to be inaccurate.

Moreover, we may not be able to successfully complete these growth initiatives, strategies and operating plans and realize all of the benefits, including growth targets, that we expect to achieve, or it may be more costly to do so than we anticipate.

Moreover, we may not be

able to successfully complete these growth initiatives, strategies and operating plans and realize all of the benefits, including growth targets, that we expect to achieve, or it may be more costly to do so than we anticipate.

Future revenue may not grow at historic rates or may decline.

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A variety of risks could cause us not to realize some or all of these growth plans and benefits.

These risks include, among others, labor market dynamics, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, increased difficulty and cost in implementing these efforts, including difficulties in complying with evolving regulatory requirements, and the incurrence of other unexpected costs associated with operating the business.

These risks include, among others, labor market dynamics, federal and state antitrust enforcement, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, increased difficulty and cost in implementing these efforts, including difficulties in complying with evolving regulatory requirements, and the incurrence of other unexpected costs associated with operating the business.

Moreover, our continued implementation of these programs may disrupt our operations and performance.

If, for any reason, the benefits we realize are less than our estimates or the implementation of these growth initiatives, strategies and operating plans negatively impacts our operations or costs more or takes longer to effectuate than we expect, or if our assumptions prove inaccurate, our business, results of operations and financial condition may be harmed.

We plan to focus our acquisition strategy on larger practices with a minimum clinician count, as well as practices that will result in fewer exceptions to our payor mix, service line adjacencies and operational processes and policies.

As a result, we may complete fewer acquisitions and our future growth may not reflect the same trends as our historic growth.

If we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not increase proportionally or at all, and we may be unable to execute on our business strategy.

Our significant growth in recent periods may put strain on our business, operations and employees.

Our significant growth in recent periods has and may continue to put strain on our business, operations and employees.

For example, we added 85 centers through our subsidiaries and affiliated practices in 2022 and grew from 3,097 employed active clinicians as of December 31, 2020 to 4,790 clinicians as of December 31, 2021, and to 5,631 clinicians as of December 31, 2022.

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To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our financial and accounting systems and our IT infrastructure.

In addition, in order for our clinicians to effectively provide virtual services to patients, we need to provide them with adequate IT and technology support.

For example, as we implement our growth strategy, we will make strategic investments in enterprise-level scalable infrastructure, and in order for our clinicians to effectively provide virtual services to patients, we need to provide them with adequate IT and technology support.

If we are unable to align our enterprise-level infrastructure with the needs of our clinicians and staff, then we will not be able to realize the full capacity of our services.

Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations, result in or exacerbate weaknesses in our infrastructure, systems or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees.

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If we cannot recruit and retain our base of experienced and qualified clinicians, our expenses may increase and our revenues may decline.

We have recently experienced an accelerated rate of attrition, which has had and may continue to have adverse effects on our business, financial condition, results of operations, as well as our ability to open new centers.

As we implement actions to reduce attrition and increase hiring of clinicians, we expect to experience increases in our labor costs, primarily due to higher wages and greater benefits required to retain and attract qualified healthcare personnel, and such increases may adversely affect our profitability.

To attract, train and retain qualified clinicians, we offer competitive compensation and benefit packages (including an equity incentive program), which may require significant investment.

While we saw an increase in turnover during the ongoing COVID-19 pandemic, we believe our retention rates have since stabilized and have been at consistent levels over the past year.

As we implement actions to reduce attrition and increase hiring of clinicians, we have experienced increases in our labor costs, primarily due to higher wages and greater benefits required to retain and attract qualified healthcare personnel, and such increases may adversely affect our profitability.

To attract, train and retain qualified clinicians, we offer competitive compensation and benefit packages (including an equity incentive program), which may continue to require significant investment.

These measures may not be enough to attract and retain the personnel we require to operate our business effectively and efficiently.

Furthermore, while we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead to increased turnover and other challenges.

In addition, hiring new clinicians involves challenges, including the ability to manage decreased profitability and increases expenses incurred during each clinician’s development and ramp-up period.

In addition, hiring new clinicians involves challenges, including the ability to manage decreased profitability and increased expenses incurred during each clinician’s development and ramp-up period.

Rising expenses including wage inflation could adversely affect our ability to attract and retain high-quality clinicians.

The substantial management time and resources which our new clinicians require may result in disruption to our existing business operations, which may harm our profitability.

The substantial management time and resources that our new clinicians require may result in disruption to our existing business operations, which may harm our profitability.

Our inability to successfully address these challenges and other factors may adversely affect the quality and profitability of our business operations as we pursue our growth and human capital strategy.

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Our indirect competitors also include episodic consumer-driven point solutions, such as in-person and virtual life coaching, digital therapy and support tools and other technologies related to mental health care services.

In addition to established mental health providers, we may face additional competition from new market entrants, including major retailers that have recently begun to offer in-person and virtual mental health care in certain markets.

In addition to established mental health providers, we may face additional competition from new market entrants, including major retailers that have recently begun to offer

in-person and virtual mental health care in certain markets.

Generally, practices, certain hospitals, and other outpatient mental health providers in the local communities we serve provide services similar to those we offer, and, in some cases, our competitors may offer a broader array of services, more flexible hours or more desirable locations to patients and outpatient mental health providers than ours, and may have larger or more specialized medical staffs to serve patients.

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If we are unable to successfully compete in the mental healthcare market, our business and prospects would be materially harmed.

If the markets in which we compete achieve our forecasted growth, our business could fail to grow at similar rates, if at all.

Even if the markets in which we compete achieve our forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.

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Estimating and forecasting growth opportunities in any given market are difficult and affected by multiple variables such as population growth, concentration of prospective patients and population density, among other things.

Further, we may not be able to sufficiently penetrate certain market segments included in our estimates and forecasts, including due to limited deployable capital, ineffective marketing efforts or the inability to develop sufficient presence in a given market to attract patients or contract with payors or primary care and other specialist physician

partners in that market.

In addition, increased unemployment may lead to a loss of insurance benefits for patients, negatively impacting their ability to access our services and, in turn, our financial performance.

For these reasons, the estimates and forecasts in this Annual Report relating to the size and expected growth of our target markets may prove to be inaccurate.

For these reasons, estimates and forecasts relating to the size and expected growth of our target markets may prove to be inaccurate.

Even if the markets in which we compete meet our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all.

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Private third-party payors pay for the services that we provide to many of our patients.

During the year ended December 31, 2021, 96% of our patients were commercially insured as of their latest visit.

During the year ended December 31, 2022, 96% of our patients were insured as of their latest visit.

If any commercial third-party payors reduce their reimbursement rates or elect not to cover some or all of our services, our business, results of operations and financial condition may be harmed.

Third-party payors may also elect to create narrow networks, which may exclude our clinicians.

A majority of our payor relationships operate across multiple independent regional contracts.

Changes in reimbursement rates from these or other large commercial payors could adversely impact our business and results of operations.

Two payors individually exceeded 10% of our total revenue for the year ended December 31, 2022:

UnitedHealthcare and Anthem, comprising 19% and 14% of our total revenue, respectively.

Our payor relationships generally operate across multiple independent regional contracts.

Changes in reimbursement rates from these or other large commercial payors could adversely impact our business and results of operations.

Therefore, changes in the reimbursement rates or coverage offered by these payors may adversely impact our business and results of operations more than changes implemented by other payors.

We plan to be selective with our payor strategy.

If we choose to structure our reimbursement coverage through larger payors, these payors may determine the reimbursement rates and coverage for more of our patients.

Our commercial payor contracts are typically structured as fee-for-service arrangements, pursuant to which we, or our affiliated practices, collect the fees for patient services.

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We are unable to predict the effect of recent and future policy changes on our operations.

In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, deterioration in general economic conditions and the funding requirements from federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs.

Changes in government health care programs may reduce the reimbursement we receive from them or private payors and could adversely impact our business and results of operations.

These rates are also generally adjusted annually for inflation.

However, those adjustments may not reflect actual increases of the cost of providing health care services.

federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs.

Changes in government health care programs may reduce or delay the reimbursement we receive from them or private payors and could adversely impact our business and results of operations.

A substantial decrease in patient volume, an increase in the number of uninsured or underinsured patients or an increase in the number of patients covered by government health care programs, as opposed to commercial plans that have higher reimbursement levels, could reduce our profitability and adversely impact future growth.

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In some cases, our revenue decreases if our volume or reimbursement decreases, but our expenses, including clinician compensation, may not decrease proportionately.

There has also been a recent trend in the healthcare sector of payors shifting to new models and value-based care arrangements.

There is also a trend in the healthcare sector of payors shifting to new payment models and value-based care arrangements.

Changing legislation and other regulatory and executive developments have led to the creation of new models of care and other initiatives in both the government and private sector.

Value-based care incentivizes health care providers to improve both the health and well-being of their patients while concurrently managing the medical expenses or “spend”

of a particular population.

related to a particular population.

Value-based care reimbursement models implemented by government health care programs or private third-party payors could materially change the manner in which mental health providers are reimbursed.

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In addition, several states where we conduct business have enacted or are considering similar laws that would apply to patients having state-regulated insurance.

For example, Florida, Ohio and Texas have adopted their own balance billing laws

that, in certain cases, prohibit out-of-network providers from billing patients in excess of in-network rates.

For example, Florida, Ohio and Texas have adopted their own balance billing laws that, in certain cases, prohibit out-of-network providers from billing patients in excess of in-network rates.

These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Self-pay patients and third-party payors may fail to pay for services even if they have been properly billed.

Reimbursement to us is typically conditioned, among other things, on our providing the proper procedure and diagnosis codes.

Reimbursement to us is typically conditioned on, among other things, our providing the proper procedure and diagnosis codes.

Incorrect or incomplete documentation and billing information could result in non-payment for services rendered or reduction in reimbursement.

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Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our partners regard as significant.

If our data were found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party vendors we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact our patients and clinicians and hinder our ability to provide care to patients, retain and attract patients, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among other things.

clinicians and hinder our ability to provide care to patients, retain and attract patients, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among other things.

Furthermore, when we implement new systems and/or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business or expose us to increased risk of cybersecurity breaches and failures.

Our information technology strategy and execution are critical to our continued success.

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Further, the technological advances of our competitors or future competitors may result in our technologies or future technologies become uncompetitive or obsolete.

Our failure to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems could adversely affect

our results of operations, financial condition and cash flow.

Similarly, if our third party vendors fail to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of their own information technology systems, interruptions in their systems or network may result in disruptions of our own systems and business operations.

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We also do not maintain any key person life insurance policies.

From time to time, there may be changes in our executive team resulting from the hiring or departure of executives, which could disrupt our business.

The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or

prevent the achievement of our business objectives.

In September 2022, we announced the transition of our Chief Executive Officer and in November 2022, we announced the transition of our Chief Financial Officer.

Any transition or loss of the services of any of our executives or highly skilled technical and managerial personnel could have a disruptive impact on our ability to implement our business strategy.

In addition, these transitions or departures could cause us to incur increased operating expenses, divert management resources and attention, or otherwise have an adverse effect on our business, internal controls, financial condition or results of operations.

Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and operation execution during this phase.

If we have additional changes to our executives, we may be unable to successfully manage and grow our business, and our results of operations, execution of corporate goals, internal controls and financial condition could suffer as a result.

Our business would be harmed if we fail to adequately plan for succession of our executives or if we fail to effectively recruit, integrate, retain and develop key talent and/or align our talent with our business needs.

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We are subject, and in the future may become subject from time to time, to legal proceedings, claims and inquiries that arise in the ordinary course of business such as claims brought by our partners in connection with commercial disputes, consumer class action claims, employment claims made by our current or former employees or other claims or proceedings.

For example, in August 2022, a shareholder class action lawsuit captioned Nayani v.

LifeStance Health Group, Inc., et al.

was filed in the United States District Court for the Southern District of New York against us and certain executives and board members, as well as the underwriters of our initial public offering.

The lawsuit alleges, in part, that the defendants violated Sections 11 and 15 of the Securities Act of 1933.

The lawsuit seeks unspecified monetary damages and purports to represent all shareholders who purchased the Company's common stock pursuant to the IPO registration statement.

Litigation may result in substantial costs, settlement and judgments and may divert management’s attention and resources, which may substantially harm our business, financial condition and results of operations.

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A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby leading analysts or potential investors to reduce their expectations of our performance, which could reduce the market price of our common stock.

Natural or man-made disasters and other similar events, including the COVID-19 pandemic, may significantly disrupt our business and negatively impact our business, financial condition and results of operations.

Natural or man-made disasters and other similar events, including the ongoing COVID-19 pandemic, may significantly disrupt our business and negatively impact our business, financial condition and results of operations.

Our centers may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, power outages, fires, floods, nuclear disasters and acts of terrorism or other criminal activities, which make it difficult or impossible for us to operate our business for some period of time.

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facilities may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or other negative effects on our business and operations, with respect to our integrated care model.

The COVID-19 pandemic, including efforts to contain the spread of the coronavirus and the introduction of new variants, has impacted, and may continue to impact, our business.

The ongoing COVID-19 pandemic, including efforts to contain the spread of the coronavirus and the introduction of new variants, has impacted, and may continue to impact, our business.

This pandemic, as well as intensified measures undertaken to contain the spread of COVID-19, could cause disruptions and severely impact our business, including, but not limited to:

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loss of insurance coverage.

We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue after the first quarter of 2022, and expect to face difficulty accurately predicting our internal financial forecasts.

We cannot predict with any certainty whether and to what degree the disruption caused by the ongoing COVID-19 pandemic and reactions thereto will continue, and we expect to face difficulty accurately predicting our internal financial forecasts.

The pandemic also presents challenges to our workforce, including both clinicians and support personnel.

As a result of these challenges, we have experienced labor force dynamics which impact our ability to retain clinicians.

We observed an uptick in visit cancellations in late December and have seen that continue into the first quarter of 2022, primarily due to clinician and patient illness.

However, it is not possible for us to accurately determine the extent to which COVID-19 impacted our patient visits and related revenues in 2021, and if these impacts, if any, will continue after the first quarter 2022.

It is also not possible to predict whether any vaccine or antiviral treatment will mitigate any adverse results of the pandemic or accelerate a restoration of normal operations.

It is not possible for us to accurately determine the extent to which COVID-19 impacted our patient visits and related revenues in 2022, and if these impacts, if any, will continue.

The COVID-19 pandemic may also have the effect of heightening many of the other risks identified elsewhere in this Annual Report.

In addition to the impact of the COVID-19 pandemic, our business and operations are exposed to risks from severe cold and flu season or the occurrence of epidemic or any other widespread illnesses.

Our revenues are dependent on patients being physically fit to receive care, in-person or virtually, with our health care providers.

As such, patient volume could significantly decrease in the event of a severe cold and flu season, an epidemic or any other widespread illness.

Such a decrease could materially impact our business, operating results, and liquidity.

We, our clinicians and affiliated practices may become subject to medical liability claims, which could cause us to incur significant expenses and may require us to pay significant damages if not covered by insurance.

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Referrals are dependent on patients relaying positive experiences with our services and clinicians.

If we are not successful in demonstrating to existing and potential patients, clinicians and payors the benefits of our platform, if we are not able to sufficiently saturate a market in convenient locations for patients, or if we are not able to achieve the support of payors and physician partners for our model and services, we could experience lower than expected patient retention.

our model and services, we could experience lower than expected patient retention.

Further, the loss or dissatisfaction of patients or clinicians may substantially harm our brand and reputation, inhibit widespread adoption of our services, reduce our revenue, and impair our ability to attract or retain patients and clinicians.

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Our quarterly results of operations have varied and may vary significantly in the future, and period-to-period comparisons of our results of operations may not be meaningful.

Accordingly, our quarterly results should not be relied upon

as an indication of future performance.

Accordingly, our quarterly results should not be relied upon as an indication of future performance.

Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, including, without limitation, the following:

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If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.

In addition, the covenants in the Credit Agreement among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., Capital One, National Association, and each lender party thereto, dated May 14, 2020 (the “May 2020 Credit Agreement”), as amended, may limit our ability to obtain additional debt, and any failure to adhere to these covenants could result in penalties or defaults that could further restrict our liquidity or limit our ability to obtain financing.

In addition, the covenants in the Credit Agreement among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., Capital One, National Association, and each lender party thereto, dated May 4, 2022 (the “2022 Credit Agreement”), may limit our ability to obtain additional debt, and any failure to adhere to these covenants could result in penalties or defaults that could further restrict our liquidity

or limit our ability to obtain financing.

If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:

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the federal Ethics in Patient Referrals Act, commonly referred to as the Stark Law, that, unless one of the statutory or regulatory exceptions apply, prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision of certain “designated health services”

if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibit the entity from billing Medicare or Medicaid for such

designated health services.

Sanctions for violating the Stark Law include denial of payment, civil monetary penalties of up to $27,750 per claim submitted and exclusion from the federal health care programs.

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the federal False Claims Act that imposes civil and criminal liability on individuals or entities that knowingly submit false or fraudulent claims for payment to the government or knowingly making, or causing to be made, a false statement in order to have a false claim paid, including qui tam or whistleblower suits;

the federal Civil Monetary Penalties Law prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;

beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;

reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs;

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medical decisions or engaging in some practices such as splitting fees with physicians and psychologists;

the Federal Trade Commission Act and federal and state consumer protection, advertisement and unfair competition laws, which broadly regulate marketplace activities and activities that could potentially harm consumers;

the Federal Trade Commission Act and federal and state antitrust, consumer protection, advertisement and unfair competition laws, which broadly regulate marketplace activities and activities that could potentially harm consumers;

laws that regulate debt collection practices as applied to our debt collection practices;

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risks related to employing or contracting with individuals or entities that are sanctioned or excluded from participation in government health care programs;

federal and state laws and policies related to the prescribing and dispensing of pharmaceuticals and controlled substances;

the Federal Substance Abuse Confidentiality Regulations known as 42 C.F.R.

the Consolidated Appropriations Act of 2021, the No Surprises Act;

federal and state laws and policies that require health care providers to maintain licensure, certification or accreditation to provide physician and other professional services, to enroll and participate in the Medicare and Medicaid programs, to report certain changes in their operations to the agencies that administer these programs, as well as state insurance laws;

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compliance with the health care reimbursement rules and fraud and abuse laws.

We are, and may in the future be, a party to various lawsuits, demands, claims, qui tam suits, governmental investigations and audits (including investigations or other actions resulting from our obligation to self-report suspected violations of law) and other legal matters, any of which could result in, among other things, substantial financial penalties or awards against us, mandated refunds, substantial payments made by us, required changes to our business practices, exclusion from future participation in Medicare, Medicaid and other health care programs and possible criminal penalties, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows and materially harm our reputation.

In March 2020, we received a Civil Investigative Demand from the U.S.

Attorney’s Office of the Northern District of Georgia involving an investigation of a laboratory arrangement.

We do not believe that we are a target of the investigation or that there is any material exposure based on our internal review.

We do not know how the investigation will be resolved, to what extent it may be expanded, or whether we or our employees will be subject to further investigation, enforcement action or related penalties that could have a material adverse effect on our business, results of operations and financial condition.

matters, any of which could result in, among other things, substantial financial penalties or awards against us, mandated refunds, substantial payments made by us, required changes to our business practices, exclusion from future participation in Medicare, Medicaid and other health care programs and possible criminal penalties, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows and materially harm our reputation.

The laws, regulations and standards governing the provision of health care services may change significantly in the future.

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These additional monetary expenditures may increase future overhead, which could have a material adverse effect on our results of operations and our ability to provide virtual services in certain jurisdictions.

Areas of government regulation that, if changed, could be costly to

Areas of government regulation that, if changed, could be costly to us include:

rules governing the practice of medicine by physicians;

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laws governing the issuance of prescriptions in an online setting;

federal and state antitrust laws that affect health care providers;

cybersecurity and privacy laws;

and laws and rules relating to the distinction between independent contractors and employees.

Additionally, the federal public health emergency related to the COVID-19 pandemic may expire in May 2023, and as a result, regulatory changes and flexibilities granted on the basis of the public health emergency may be eliminated.

In addition, a few states have imposed different, and, in some cases, additional, standards regarding the provision of services virtually.

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If we are required to adapt our business model, we may be limited to only in-person services, which may have a material adverse effect on our business, financial condition and results of operations.

Several states in which we operate have adopted competition and health care planning laws that affect transactions in the health care industry.

Some states require notification, filings, and/or approvals by state agencies with respect to proposed transactions involving health care providers.

Such processes can take significant time, require filing fees, result in conditions that require certain operational changes and include regular annual reviews regarding the cost and quality of services, among other topics.

These laws and the level of enforcement by the respective state agencies are subject to continuous change and interpretation, and compliance with these laws could adversely affect our business.

We are dependent on our relationships with affiliated practices, which we do not own, to provide health care services, and our business would be harmed if those relationships were disrupted or if our arrangements with these entities became subject to legal challenges.

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Our ability to perform medical and virtual services in a particular U.S.

state is directly dependent upon the applicable laws governing the practice of medicine, health care delivery and fee splitting in such locations, which are subject to changing political, regulatory and other influences.

state is directly dependent upon the applicable laws governing the practice of medicine or other professions, health care delivery and fee splitting in such locations, which are subject to changing political, regulatory and other influences.

The extent to which a U.S.

state considers particular actions or relationships to constitute the practice of medicine is subject to change and to evolving interpretations by professional boards and state attorneys general, among others, each of which has broad discretion.

state considers particular actions or relationships to constitute the practice of medicine or other professions is subject to change and to evolving interpretations by professional boards and state attorneys general, among others, each of which has broad discretion.

There is a risk that U.S.

state authorities in some jurisdictions may find that our contractual relationships with outpatient mental health practices, which govern the provision of medical and virtual services and the payment of administrative and operations support fees, violate laws prohibiting the corporate practice of medicine and fee-splitting.

The extent to which each state may consider particular actions or contractual relationships to constitute improper influence of professional judgment varies across the states and is subject to change and to evolving interpretations by state boards of medicine and state attorneys general, among others.

medicine or other professions and fee-splitting.

The extent to which each state may consider particular actions or contractual relationships to constitute improper influence of professional judgment varies across the states and is subject to change and to evolving interpretations by state licensing boards and state attorneys general, among others.

Accordingly, we must monitor our compliance with laws in every jurisdiction in which we operate on an ongoing basis.

Our activities and arrangements, if challenged, could be found to be in violation with the law.

Additionally, it is possible that the laws and rules governing the practice of medicine, including the provision of virtual services, and fee splitting in one or more jurisdictions may change in a manner adverse to our business.

While the management contracts prohibit us from controlling, influencing or otherwise interfering with the practice of medicine by the affiliated clinicians, and provide that clinicians retain exclusive control and responsibility for all aspects of the practice of medicine and the delivery of medical services, there can be no assurance that our contractual arrangements and activities with affiliated practices will be free from scrutiny from U.S.

state authorities, and we cannot guarantee that subsequent interpretation of the corporate practice of medicine and fee-splitting laws will not circumscribe our business operations.

State corporate practice of medicine doctrines also often impose penalties on health care clinicians themselves for aiding the corporate practice of medicine, which could discourage clinicians from participating in our network.

Additionally, it is possible that the laws and rules governing the practice of medicine or other professions, including the provision of virtual services, and fee splitting in one or more jurisdictions may change in a manner adverse to our business.

While the management contracts prohibit us from controlling, influencing or otherwise interfering with the practice of medicine and other professions by the affiliated clinicians, and provide that clinicians retain exclusive control and responsibility for all aspects of the practice of medicine or other professions and the delivery of clinical services, there can be no assurance that our contractual arrangements and activities with affiliated practices will be free from scrutiny from U.S.

state authorities, and we cannot guarantee that subsequent interpretation of the corporate practice and fee-splitting laws will not circumscribe our business operations.

State corporate practice doctrines also often impose penalties on health care clinicians themselves for aiding the corporate practice of medicine or other professions, which could discourage clinicians from participating in our network.

If a successful legal challenge or an adverse change in relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations in affected jurisdictions would be disrupted, which could harm our business.

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Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.

Prior to the Supreme Court's decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance covered through the ACA marketplace.

The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

In addition to these legal challenges, the Biden administration may advance new health care policy goals and objectives through statute, regulation and executive order.

While efforts to repeal all or part of the ACA have subsided, in part due to the results of the 2020 election, we cannot be certain that there will not be further legislative efforts or judicial challenges in the future.

In addition to judicial challenges, the Biden administration or U.S.

Congress may advance new health care policy goals and objectives through statute, regulation and executive order.

For example, the Biden administration has indicated an intent to propose a public health insurance option, which, if enacted, could significantly change the competitive landscape among commercial insurance carriers.

Other legislative changes to provider reimbursement have been proposed and adopted since the ACA was enacted.

These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken.

The sequestration reductions will be phased in gradually with a 1% sequestration reduction between April 1 and June 30, 2022;

the full 2% sequestration reduction will begin on July 1, 2022.

beginning on July 1, 2022, the full 2% sequestration went into effect.

In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

New laws may result in additional reductions in Medicare and other health care funding, which may materially adversely affect customer demand and affordability for our business and, accordingly, the results of our financial operations.

Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which will not be fully implemented until later in 2022.

At this time, it is unclear how the introduction of the MACRA program will impact overall physician reimbursement.

At this time, it is still unclear how the introduction of the MACRA program will impact overall physician reimbursement.

Such changes in the regulatory environment may also result in changes to our payor mix that may affect our operations and revenue.

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Uncertainty regarding future amendments to the ACA as well as new legislative proposals to reform health care and government insurance programs, along with the trend toward managed health care in the United States, could result in reduced demand and prices for our services.

We expect that additional state and federal health care reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments and other third-party payors will pay for health care products and services, which could adversely affect our business, financial condition and results of operations.

We expect that additional state and federal health care reform measures will be adopted in the future, any of which

could limit the amounts that federal and state governments and other third-party payors will pay for health care products and services, which could adversely affect our business, financial condition and results of operations.

If our or our vendors’

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computer, network and communications systems infrastructure are critical to the success of our business.

Our security features and processes or our vetting and oversight of third parties may

not be sufficient for all circumstances.

Our security features and processes or our vetting and oversight of third parties may not be sufficient for all circumstances.

We also exercise limited control over third-party vendors, which increases our vulnerability to problems with the technology and information services they provide.

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Accordingly, we are at risk that cyber-attackers exploit these known vulnerabilities before they have been addressed.

Due to the systems and platforms that we operate, the increased frequency at which vendors are issuing security patches to their products, the need to test patches and, in some cases, coordinate with clients and vendors, before they can be deployed, we continuously face the substantial risk that we cannot deploy patches in a timely manner.

that we cannot deploy patches in a timely manner.

These risks can be heightened as we acquire and work to integrate additional centers.

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If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually.

We have experienced minor breaches of PHI in the ordinary course of business, but none have involved more than 500 individuals.

Further, the HHS OCR published a proposed rule in January of 2021, which, among

other things calls for greater care coordination and an individual’s rights to access patient records.

We have experienced minor breaches of PHI in

the ordinary course of business, but none have involved more than 500 individuals.

Further, the HHS OCR published a proposed rule in January of 2021, which, among other things calls for greater care coordination and an individual’s rights to access patient records.

The proposed rule specifically encourages the disclosure of PHI when needed to help individuals experiencing substance use disorder, serious mental illness and in emergency circumstances.

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Additionally, we may be required to comply with the Federal Substance Abuse Confidentiality Regulations known as 42 C.F.R.

In July 2020, new regulations overhauled these laws to better align with HIPAA and make other updates to facilitate better coordination of care in response to the opioid epidemic.

Part 2 ("Part 2").

In July 2020, new regulations overhauled these laws to better align with HIPAA and make other updates to facilitate better coordination of care in response to the opioid epidemic and on December 2, 2022, HHS OCR published a proposed rule containing proposals to implement the CARES Act provisions, which bring Part 2 in alignment with HIPAA including, among other things, expanding the scope of permitted disclosures of substance use disorder treatment records and apply HIPAA's breach notification standards to breaches of records protected by Part 2.

The federal government could initiate criminal charges for violations of Part 2, which include $500 for the first offense;

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federal government and various states and governmental agencies have adopted or are considering adopting various laws, regulations and standards regarding the collection, use, retention, security, disclosure, transfer and other processing of sensitive and personal information.

For example, California implemented the California Confidentiality of Medical Information Act, that imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

For example, California implemented the California Confidentiality of Medical Information Act, which imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

These laws and regulations are not necessarily preempted by HIPAA, particularly if a state affords greater protection to individuals than HIPAA.

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In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused.

California has also implemented the California Consumer Privacy Act ("CCPA"), which came into effect on January 1, 2020 and, which increases privacy rights for California residents and imposes obligations on companies that process their personal information.

California has also implemented the California Consumer Privacy Act ("CCPA"), which came into effect on January 1, 2020, which increases privacy rights for California residents and imposes obligations on companies that process their personal information.

Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information.

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The CCPA has been amended from time to time, and it is possible that further amendments will be enacted, but even in its current format remains unclear how various provisions of the CCPA will be interpreted and enforced.

Additionally, the recently passed California Privacy Rights Act (“CPRA”), which will become operational in 2023, will significantly modify the CCPA, including expanding consumers’

rights with respect to certain sensitive personal information, and creating a new state agency that will be vested with authority to implement and enforce the CCPA and CPRA.

We will need to evaluate and potentially update our privacy regulatory programs to ensure compliance with such requirements, and our review and update may not be able to achieve full compliance within the allowed period of time.

The Virginia Consumer Data Protection Act (“CDPA”) was signed into law on March 2, 2021 and will go into effect on January 1, 2023.

The CDPA provides consumers with new rights to access, correct, delete and obtain a copy of the personal information a covered business holds about them, and to opt out of certain data processing activities.

Significantly, covered business will also be required to obtain opt-in consent before collecting or processing “sensitive data”

and to conduct “Data Protection Assessments”

in specified circumstances.

The state attorney general can assess penalties up to $7,500 per violation.

We are assessing the effects that CDPA will have on our business.

Additionally, the recently passed California Privacy Rights Act (“CPRA”), which will significantly modifies the CCPA, including expanding consumers’

rights with respect to certain sensitive personal information, and creating a new state agency that will is vested with authority to implement and enforce the CCPA and CPRA.

The majority of the CPRA provisions will go into effect on January 1, 2023, with some requirements applying to data collected beginning January 1, 2022.

The CPRA will significantly expand the CCPA's data protection obligations.

Failure to comply with CCPA or CPRA could result in penalties for noncompliance of up to $7,500 per violation.

We will need to continue to evaluate our privacy program as the implementation of the law evolves and may need to make further modifications to our programs, which, if we fail to do so as required, may expose us to liability under the regulation.

When we implement new systems and/or upgrade existing systems used to store PII, we could be exposed to increased risk of data security breaches and failures.

There are many other state-based data privacy and security laws and regulations that may impact our business.

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If we or our payment processor fail to comply with the PCI DSS, we may incur significant fines or liability and lose access to major payment card systems.

Our systems are subject to annual review under the PCI DSS requirements, and we have historically had, may now have, and may have in the future have items that require improvement.

Our systems are subject to annual review under the PCI DSS requirements, and we have historically had, may now have, and may have in the future have

items that require improvement.

Industry groups may in the future adopt additional self-regulatory standards by which we are legally or contractually bound.

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Our existing indebtedness could adversely affect our business and growth prospects.

As of December 31, 2021, we had $161.2 million in principal amount outstanding under our May 2020 Credit Agreement.

As of December 31, 2022, we had $234.0 million in principal amount outstanding under our 2022 Credit Agreement.

Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position.

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In such an event, we may not have sufficient assets to repay all of our indebtedness.

The terms of the May 2020 Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The May 2020 Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

The terms of the 2022 Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The 2022 Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

incur additional indebtedness or other contingent obligations;

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for further information about these covenants.

The restrictive covenants in the May 2020 Credit Agreement require us to satisfy certain financial condition tests.

The restrictive covenants in the 2022 Credit Agreement require us to satisfy certain financial condition tests.

Our ability to satisfy those tests can be affected by events beyond our control.

In addition, the May 2020 Credit Agreement contains a financial maintenance covenant requiring compliance with a maximum leverage ratio as of the last day of each fiscal quarter.

A breach of the covenants or restrictions under the May 2020 Credit Agreement could result in an event of default.

In addition, the 2022 Credit Agreement contains a financial maintenance covenant requiring compliance with a maximum leverage ratio as of the last day of each fiscal quarter.

A breach of the covenants or restrictions under the 2022 Credit Agreement could result in an event of default.

Such a default may allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt we may incur to which a cross-acceleration or cross-default provision applies.

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These restrictions, along with restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability to grow in accordance with our growth strategy.

The transition away from LIBOR may adversely affect our cost to obtain financing.

On July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit London Interbank Offered Rate (“LIBOR”) rates after 2021.

Financial Conduct Authority and the ICE Benchmark Administration (the “IBA”) ceased publication in their current form for (i) 1-week and 2-month U.S.

Dollar LIBOR rates immediately following the publication on December 31, 2021 and announced they will cease publication in their current form for overnight, 1-month, 3-month, 6-month and 12-month LIBOR rates immediately following the publication on June 30, 2023.

The Alternative Reference Rates Committee, a steering committee comprised of U.S.

financial market participants, selected and the Federal Reserve Bank of New York has recommended the Secured Overnight Finance Rate (“SOFR”), as an alternative to LIBOR.

SOFR is a broad measure of the cost of borrowing cash in the overnight U.S.

treasury repo market.

There can be no assurance that rates linked to SOFR or associated changes to the adoption of SOFR will be as favorable to us as LIBOR and may result in an effective increase in the applicable interest rate on our current or future debt obligations, including our May 2020 Credit Agreement.

Risks Related to Our Common Stock

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As a result, the information we provide stockholders is different than the information that is available with respect to other public companies.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

If some investors find

our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

In addition, 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.

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Accordingly, we have determined these deficiencies in the aggregate constitute a material weakness.

We are in the process of designing and implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies which led to the material weaknesses.

As of December 31, 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.

In addition, in the fourth quarter of 2021, we have implemented external financial reporting and internal audit functions to support our regulatory external financial reporting objectives;

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, and monitoring controls;

development and implementation of controls related to the formalization of our accounting policies and procedures and financial reporting;

development and implementation of IT security and governance controls to address program change of internally and externally developed system and computer operations associated with information systems impacting the preparation of our consolidated financial statements;

development and implementation of controls related to the periodic monitoring and review of user access rights, the identification and risk ranking of segregation of duties conflicts, and, where it is determined there is a need for an individual to have conflicting access, a periodic review of the underlying activities is performed by an independent person who does not have such conflicting access.

We have made progress towards designing and 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.

Failing to develop or maintain effective internal control over financial reporting may result in a misstatement of our financial statements or cause investors to lose confidence in us, which could have a material adverse effect on our business, financial condition or results of operations.

If we fail to maintain effective internal control over financial reporting and effective disclosure controls and procedures, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our company.

We are not currently required to comply with the rules of Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial report for that purpose, nor have we engaged an independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our consolidated financial statements.

We are required to comply with the SEC's rules implementing Section 302 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports.

Although we are required to disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, we are not required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until our second annual report on Form 10-K.

Our independent registered public accounting firm will first be required to audit the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company”

and may identify additional material weakness.

Although we are required to annually assess our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, as an emerging growth company, our independent registered public accounting firm will not be required to audit the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K until the first year we are no longer an “emerging growth company”.

At such time, our independent registered public accounting firm may identify additional material weakness and may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operated.

To comply with the requirements of being a public company, we have undertaken certain actions, such as implementing new internal controls and procedures and hiring additional accounting staff.

We may also need to undertake certain other actions in the future, including the hiring of internal audit staff or additional accounting staff.

Testing and maintaining internal controls can divert our management's attention from other matters that are important to the operation of our business.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our common stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors