What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-09 compared with 2022-03-17 · 121 added, 198 removed, 394 unchanged (45% of the section changed)

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Holders of Record

As of March 11, 2022, there were approximately 108 stockholders of record for our common stock.

As of February 28, 2023, there were approximately 63 stockholders of record for our common stock.

The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

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S&P 500 Health Care

LifeStance Health Group, Inc.

S&P 500 Health Care

The information above shall not be deemed “soliciting material”

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We received net proceeds of approximately $558.0 million.

There has been no material change in the use of proceeds as described in the final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC, on June 11, 2021 (the “Final Prospectus”).

There has been no material change in the use of proceeds as described in the final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act, with the SEC, on June 11, 2021 (the “Final Prospectus”).

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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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.

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

Unless the context otherwise indicates or requires, the terms "LifeStance Health Group", "LifeStance Health", "LifeStance", “we”, and “our”

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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.

Through our 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.

Primary care is an important setting for the treatment of mental health conditions—primary care physicians are often the sole contact 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.

We have a demonstrated track record of growth.

From our inception in March 2017 through December 31, 2021, we have successfully opened 226 de novo centers and completed 77 acquisitions.

We increased our total number of centers from 170 as of December 31, 2019, to 370 as of December 31, 2020 and to 534 as of December 31, 2021.

TPG Acquisition and Comparability of Results

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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 and affiliates of Silversmith received a distribution of 100% of the equity interests of LifeStance Health Holdings, Inc., a direct 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.

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.

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See Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

For the year ended December 31, 2019 and for the period from January 1, 2020 to May 14, 2020, we present the financial statements of LifeStance Health, LLC and its consolidated subsidiaries and affiliated practices.

For the period from January 1, 2020 to May 14, 2020, 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 December 31, 2020 and for the period from January 1, 2021 to June 14, 2021 (the effective date of our IPO, we present the financial statements of LifeStance TopCo and its consolidated subsidiaries and affiliated practices and for the period from June 14, 2021 through December 31, 2021, we present the financial statements of LifeStance Health Group, Inc.

For the period from April 13, 2020 (the date of formation of LifeStance TopCo) to December 31, 2020 and for the period from January 1, 2021 to June 14, 2021 (the effective date of our IPO, we present the financial statements of LifeStance TopCo and its consolidated subsidiaries and affiliated practices and for the period from June 14, 2021 through December 31, 2021 and the year ended December 31, 2022, we present the financial statements of LifeStance Health Group, Inc.

and its consolidated subsidiaries and affiliated practices.

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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, we completed our IPO in which we issued and sold 32,800,000 shares of common stock and the Selling Stockholders sold 7,200,000 shares of common stock, at an offering price of $18.00 per share.

The Selling Stockholders 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.

We 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.

We 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 us in exchange for shares of our common stock (including shares of common stock issued as restricted stock subject to vesting) (the “Organizational Transactions”).

Following the contribution of partnership interests, LifeStance TopCo became wholly owned by us.

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 our common stock plus 30,765,951 shares of common stock issued as restricted stock subject to vesting.

As a result of this

contribution and exchange, we 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 our consolidated balance sheets.

In connection with the voluntary prepayment of $294.0 million related to borrowings outstanding as of June 15, 2021, we 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 the Business to LifeStance Health Group, Inc.'s audited consolidated financial statements.

COVID-19 Impact

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.

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.

The pandemic and post-pandemic measures have resulted in dramatically increasing stressors and leading to poorer overall mental and physical health.

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.

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

Our clinician recruitment opportunities have also 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.

However, as the pandemic has surged and waned, we believe there has been some impact on our operations, including due to patient and clinician illness, which resulted in cancellations of appointments, deferrals and fewer appointments initially scheduled.

Key Factors Affecting Our Results

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We generate revenue on a per visit basis as clinical services are rendered by our clinicians.

We generate lower revenue and experience lower clinician utilization in periods that have fewer business days than other periods.

As our existing centers mature, we grow capacity through investments in office expansion to increase our average clinicians per center and enhance overall utilization.

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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 that 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 4,790 clinicians employed through our subsidiaries and affiliated practices, as of December 31, 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.

We believe we have significant opportunity to grow our employed clinician base from our current base of 5,631 clinicians employed through our subsidiaries and affiliated practices, as of December 31, 2022.

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.

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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.

We have established a large network of 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.

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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.

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.

Our payor relationships, including national contracts with multiple payors, 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.

As a result, we have consistently expanded our payor relationships from 111 as of December 31, 2019, to 206 as of December 31, 2020 and to over 250 as of December 31, 2021.

A majority of our revenue is derived from commercial in-network insurance coverage –

We believe we deliver value to our payor partners in several ways, including access to a national clinician employee base, lower total medical costs, and stronger member and client value proposition through the offering of in-network mental health services.

A majority of our revenue is derived from patients with commercial in-network insurance coverage –

for the year ended December 31, 2022, our payor mix by revenue was 91% commercial in-network payors, 4% government payors, 4% self-pay and 1% non-patient services revenue.

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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.

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

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From our inception in 2017 through December 31, 2022, we have successfully opened 316 de novo centers, including 90 de novo centers in 2022, 106 de novo centers in 2021 and 78 de novo centers in 2020.

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 believe there is a significant opportunity to use de novo center openings to address 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.

This year, we transitioned to a more sustainable design for all new de novo centers going forward that reimagines the mental healthcare experience for both patients and clinicians while reinforcing our commitment to sustainability.

In 2021, we transitioned to a more sustainable design for all new de novo centers going forward that reimagines the mental healthcare experience for both patients and clinicians while reinforcing our commitment to sustainability.

We have built a proprietary pipeline of acquisition targets, providing us with significant opportunities to scale through potential acquisitions.

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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.

As of December 31, 2022, we had completed 90 acquisitions of existing practices, since our inception.

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We believe this metric best reflects the economics of our model as it includes all direct expenses associated with our patients’

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.

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Total revenue

Revenue growth

(Loss) income from operations

Center Margin

Net (loss) income and comprehensive

(loss) income

Adjusted EBITDA

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) income and comprehensive (loss) income, and, as calculated, may not be comparable to companies in other industries or within the same industry with similarly titled measures of performance.

* 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.

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Depreciation and amortization

General and administrative

General and administrative expenses (1)

Center Margin

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We present Adjusted EBITDA, a non-GAAP performance measure, to supplement our results of operations presented in accordance with generally accepted accounting principles, or 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.

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) income and comprehensive (loss) income excluding interest expense, depreciation and amortization, (benefit) provision for income taxes, (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 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, executive transition costs, litigation costs, and other expenses.

We include Adjusted EBITDA in this Annual Report because it is an important measure upon which our management assesses, and believes investors should assess, our operating performance.

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

A reconciliation of net (loss) income and comprehensive (loss) income to Adjusted EBITDA 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) income and comprehensive (loss) income.

A reconciliation of net loss to Adjusted EBITDA 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.

December 31, 2022

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(in thousands)

Net (loss) income and comprehensive

(loss) income

Adjusted for:

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Depreciation and amortization

Income tax (benefit) provision

Loss (gain) on remeasurement

of contingent consideration

Stock and unit-based

compensation expense

Income tax benefit

Loss (gain) on remeasurement of

contingent consideration

Stock and unit-based compensation

Management fees (1)

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Offering related costs (3)

Endowment to the LifeStance

Health Foundation

Endowment to the LifeStance Health

Executive transition costs

Litigation costs (4)

Other expenses (5)

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(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 2019, $1.4 million relate 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) Litigation costs include only those costs which are considered non-recurring and outside of the ordinary course of business based on the following considerations, which we assess regularly:

(i) the frequency of similar cases that have been brought to date, or are expected to be brought within two years, (ii) the complexity of the case, (iii) the nature of the remedy(ies) sought, including the size of any monetary damages sought, (iv) the counterparty involved, and (v) our overall litigation strategy.

(5) 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 and other are components of general and administrative expenses included in our consolidated statements of income/(loss) and comprehensive income/(loss).

Former owner fees and impairment on loans are components of center costs, excluding depreciation and amortization included in our consolidated statements of income/(loss) and comprehensive income/(loss).

Acquired center integration and other are components of general and administrative expenses included in our consolidated statements of operations and comprehensive loss.

Former owner fees is a component of center costs, excluding depreciation and amortization included in our consolidated statements of operations and comprehensive loss.

These costs are summarized for each period in the table below:

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Former owner fees (2)

Impairment of loans (3)

(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) Represents write-off of advances provided to clinicians of acquired entities.

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

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Performance obligations are determined based on the nature of the services provided, and generally each individual counselling session is a performance obligation.

We have relationships with over 250 third-party payors.

We have relationships with third-party payors.

We determine the transaction price under these contracts based on standard charges for services provided net of price concessions related to contractual adjustments provided to third-party payors, discounts provided to uninsured patients in accordance with our policy and/or implicit price concessions provided to patients.

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Some of our third-party payor contracts are inherited through acquisitions of practices with existing contracts where we did not have an existing relationship with that payor in the market.

During each of the year ended December 31, 2019 (Predecessor), the Predecessor 2020 Period and the Successor 2020 Period three payors individually exceeded 10% of our revenue.

During the year ended December 31, 2021 (Successor), two payors individually exceeded 10% of our revenue.

During each of the Predecessor 2020 Period and the Successor 2020 Period three payors individually exceeded 10% of our revenue.

During the years ended December 31, 2022 and 2021 (Successor), two payors individually exceeded 10% of our revenue.

Our payor relationships generally operate across multiple independent regional contracts.

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Clinicians include psychiatrists, APNs, psychologists and therapists.

support employees include welcome coordinators and clinical technicians.

Patient support employees include welcome coordinators and clinical technicians.

We expect our center costs, excluding depreciation and amortization to continue to increase in the short- to medium-term as we strategically invest to expand our business and to potentially capture more of our market opportunity.

General and administrative

General and administrative expenses

General and administrative expenses consist primarily of salaries, wages and employee benefits for our executive leadership, finance, human resources, marketing, billing and credentialing support and technology infrastructure and stock and unit-based compensation for all employees.

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Depreciation and amortization expense consists primarily of depreciation on leasehold improvements and other fixed assets as well as amortization on trade name and non-competition agreement intangibles.

Other Income (Expense)

Other income (expense) consists primarily of gains and losses on remeasurement of a contingent consideration liability where the performance condition was not met or likelihood of payment increases, transaction costs related to legal, consulting and other expenses, related party management fees, interest expense on our credit facilities and amortization of debt issue costs.

We expect our interest expense and transaction costs to increase in the short- to medium-term as we strategically invest to expand our business.

Income Tax Benefit (Provision)

Other (Expense) Income

Other (expense) income consists primarily of gains and losses on remeasurement of a contingent consideration liability where the performance condition was not met or likelihood of payment increases, transaction costs related to legal, consulting and other expenses, related party management fees, interest expense on our credit facilities and amortization of discount and debt issue costs.

Income Tax Benefit

We account for income taxes using an asset and liability approach.

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We also consider the expected reversal of deferred tax liabilities and analyze the period in which these would be expected to reverse to determine whether the taxable temporary difference amounts serve as an adequate source of future taxable income to support the realizability of the deferred tax assets.

No valuation allowance was recognized as of December 31, 2021 and 2020 (Successor).

In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position.

Results of Operations

Comparison of the Year Ended December 31, 2021 (Successor), the Successor 2020 Period, and the Predecessor 2020 Period

Comparison of the Years Ended December 31, 2022 and 2021 (Successor)

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

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OPERATING EXPENSES

Center costs, excluding

depreciation and amortization

shown separately below

General and administrative

Center costs, excluding depreciation and

amortization shown separately below

General and administrative expenses

Depreciation and amortization

Total operating expenses

(LOSS) INCOME FROM

OTHER INCOME (EXPENSE)

(Loss) gain on remeasurement

of contingent consideration

(LOSS) INCOME FROM OPERATIONS

OTHER (EXPENSE) INCOME

(Loss) gain on remeasurement of

contingent consideration

Transaction costs

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Total other expense

(LOSS) INCOME BEFORE

LOSS BEFORE INCOME TAXES

INCOME TAX BENEFIT

NET (LOSS) INCOME AND

COMPREHENSIVE (LOSS)

Total Revenue

For the year ended December 31, 2021 (Successor), total revenue was $667.5 million.

For the Successor 2020 Period and the Predecessor 2020 Period, total revenue was $265.6 million and $111.7 million, respectively.

Total revenue was composed of $660.2 million of patient service revenue and $7.3 million of nonpatient revenue.

We anticipate revenue growth to continue to be driven by our de novo and acquisition strategy as well as our ability to increase patient visits at existing centers through our ability to accommodate virtual sessions in addition to our in-person visits.

Total revenue increased $192.0 million, or 29%, to $859.5 million for the year ended December 31, 2022 (Successor) from $667.5 million for the year ended December 31, 2021 (Successor).

This was primarily due to an increase of $189.6 million of patient service revenue due to an increase in patient visits and $2.4 million of nonpatient revenue.

We anticipate revenue growth to continue to be driven by our in-house clinician recruiting and de novo strategies as well as our ability to increase patient visits at existing centers through our ability to accommodate virtual sessions in addition to our in-person visits.

Operating Expenses

Center costs, excluding depreciation and amortization

For the year ended December 31, 2021 (Successor), center costs, excluding depreciation and amortization was $466.0 million, primarily consisting of $406.1 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 $59.9 million.

For the Successor 2020 Period, center costs, excluding depreciation and amortization was $179.3 million, primarily consisting of $159.7 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 $19.6 million.

For the Predecessor 2020 Period, center costs, excluding depreciation and amortization was $78.8 million, primarily consisting of $70.3 million 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

For the year ended December 31, 2021 (Successor), general and administrative expenses were $433.7 million, consisting primarily of $357.9 million in salaries, wages and employee benefits, which included $259.4 million of stock and unit-based compensation expense primarily relating to the modifications to covert 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 $17.1 million in occupancy costs and $58.7 million in other operating expenses, including professional services, directors' and officers' insurance and the endowment to the LifeStance Health Foundation.

For the Successor 2020 Period, general and administrative expenses were $51.8 million, consisting primarily of $35.6 million in salaries, wages and employee benefits, as well as $6.3 million in occupancy costs and $9.9 million in other operating expenses, including professional services and insurance.

For the Predecessor 2020 Period, 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.

Center costs, excluding depreciation and amortization increased $156.5 million, or 34%, to $622.5 million for the year ended December 31, 2022 (Successor) from $466.0 million for the year ended December 31, 2021 (Successor).

This was primarily due to a $133.1 million increase in center-based compensation due to the increase in clinicians and patient visits and a $23.4 million increase in occupancy costs consisting of center rent and utilities and other operating expenses consisting of office supplies and insurance due to the increase in our number of centers.

General and administrative expenses

General and administrative expenses decreased $55.7 million, or 13%, to $378.0 million for the year ended December 31, 2022 (Successor) from $433.7 million for the year ended December 31, 2021 (Successor).

This was primarily due to decreases of $45.1 million in salaries, wages and employee benefits, which included a decrease of $72.0 million in stock and unit-based compensation expense primarily relating to RSAs and RSUs granted at the time of IPO during 2021 without a similar expense in 2022, which was offset by an increase in salaries, wages and employee benefits of $26.9 million, and $17.6 million in other operating expenses, including professional services and insurance related to our IPO, which was slightly offset by an increase of $7.0 million in occupancy costs.

Depreciation and amortization

For the year ended December 31, 2021 (Successor), depreciation and amortization expense was $54.1 million.

For the Successor 2020 Period, depreciation and amortization expense was $27.7 million.

For the Predecessor 2020 Period, depreciation and amortization expense was $3.3 million.

This was primarily due to the amortization of intangibles and depreciation during the periods.

Other Income (Expense)

Depreciation and amortization expense increased $15.1 million to $69.2 million for the year ended December 31, 2022 (Successor) from $54.1 million for the year ended December 31, 2021 (Successor).

This was primarily due to the amortization of intangibles and depreciation during the period.

Other (Expense) Income

(Loss) gain on remeasurement of contingent consideration

For the year ended December 31, 2021 (Successor), loss on remeasurement of contingent consideration was $2.6 million.

For the Successor 2020 Period, loss on remeasurement of contingent consideration was $0.6 million.

For the Predecessor 2020 Period, gain on remeasurement of contingent consideration was $0.3 million.

(Loss) gain on remeasurement of contingent consideration decreased $0.9 million to $1.7 million loss for the year ended December 31, 2022 (Successor) from $2.6 million loss for the year ended December 31, 2021 (Successor).

This was primarily due to changes in the weighted probability of achieving the performance and operational targets.

Transaction costs

For the year ended December 31, 2021 (Successor), transaction costs were $3.8 million, primarily consisting of legal, consulting and other expenses.

For the Successor 2020 Period and the Predecessor 2020 Period, transaction costs were $3.9 million and $33.2 million, respectively, primarily consisting of $32.9 million of costs related to the TPG Acquisition and legal, consulting and other expenses in connection with other acquisitions that closed in the Predecessor 2020 Period.

Transaction costs decreased $3.1 million to $0.7 million for the year ended December 31, 2022 (Successor) from $3.8 million for the year ended December 31, 2021 (Successor).

Transaction costs decreased primarily due to lower fees related to corporate transactions.

Interest expense

For the year ended December 31, 2021 (Successor), interest expense was $38.9 million, primarily consisting of $14.4 million related to our voluntary prepayment of borrowings outstanding with IPO proceeds, in connection with which we incurred an extinguishment of debt charge within interest expense consisting of the $8.8 million prepayment charge and the write-off of unamortized debt issuance costs of $5.6 million.

For the Successor 2020 Period and the Predecessor 2020 Period, interest expense was $19.1 million and $3.0 million, respectively.

Interest in the Successor 2020 Period consisted of interest expense under our May 2020 Credit Agreement and a write-off of unamortized debt issue costs related to the debt modification.

Interest expense in the Predecessor 2020 Period primarily consisted of interest on our term loans under our Prior Credit Agreement (as defined below).

Other income (expense)

For the year ended December 31, 2021 (Successor), other expense was $1.5 million, primarily consisting of the management termination fee incurred of $1.2 million as a result of our IPO.

For the Successor 2020 Period, other expense was $0.3 million and primarily consisted of related party management fees of $0.2 million.

For the Predecessor 2020 Period, other expense was $14 thousand and consisted of related party management fees.

Interest expense decreased $19.0 million to $19.9 million for the year ended December 31, 2022 (Successor) from $38.9 million for the year ended December 31, 2021 (Successor).

This decrease was primarily due to lower borrowings outstanding during the period and a decrease in an extinguishment of debt charge of $11.1 million, which is comprised of debt prepayment charge and write-off of debt issuance costs related to the extinguishment of the May 2020 Credit Agreement.

Other expense

Other expense decreased to $0.2 million for the year ended December 31, 2022 (Successor) from $1.5 million primarily consisting of the management termination fee incurred of $1.2 million as a result of our IPO.

Income Tax Benefit

For the year ended December 31, 2021 (Successor), income tax benefit was $25.9 million.

For the Successor 2020 Period and the Predecessor 2020 Period, the income tax benefit was $4.0 million and $2.3 million, respectively.

The increase was primarily due to the increase in taxable loss for the period.

Comparison of the Successor 2020 Period, the Predecessor 2020 Period, and the Year Ended December 31, 2019 (Predecessor)

See discussion of the comparison of the Successor 2020 Period, the Predecessor 2020 Period and the year ended December 31, 2019 (Predecessor) in the Final Prospectus, section “—Management's Discussion and Analysis of Financial Condition—Results of Operations”.

Income tax benefit decreased $8.7 million to $17.2 million for the year ended December 31, 2022 (Successor) from $25.9 million for the year ended December 31, 2021 (Successor).

The decrease was primarily due to the decrease in taxable loss for the period.

Comparison of the Year Ended December 31, 2021 (Successor), the Successor 2020 Period, and the Predecessor 2020 Period

See discussion of the comparison of the year ended December 31, 2021 (Successor), the Successor 2020 Period, and the Predecessor 2020 Period in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 17, 2022, Part II - Item 7.

“—Management's Discussion and Analysis of Financial Condition—Results of Operations”.

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.

Our principal sources of liquidity to date have included cash from operating activities, cash on hand and amounts available under the May 2020 Credit Agreement executed simultaneously with the TPG Acquisition on May 14, 2020 and the 2022 Credit Agreement.

We had cash and cash equivalents of $108.6 million and $148.0 million as of December 31, 2022 and 2021, respectively.

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.

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 from the issuance date of our December 31, 2022 financial statements, without any additional financing.

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.

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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, 2021 and 2020, there was an aggregate principal amount of $161.2 million and $373.8 million, respectively, outstanding under the May 2020 Credit Agreement.

As of December 31, 2021, our non-cancellable future minimum operating third-party lease payments totaled $251.1 million, and our non-cancellable future minimum operating related-party lease payments totaled $12.2 million.

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.

As of December 31, 2022 and 2021, there was an aggregate principal amount of $234.0 million outstanding

under the 2022 Credit Agreement and $161.2 million outstanding under the May 2020 Credit Agreement, respectively.

As of December 31, 2022, our non-cancellable future minimum operating lease payments totaled $299.9 million.

May 2020 Credit Agreement

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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 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.

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 December 31, 2021 and 2020, we were in compliance with all financial covenants under the Credit Facilities.

On April 30, 2021, we entered into the Third Amendment to the Credit Agreement, which provided for incremental delayed draw term loans in the aggregate principal amount of $70.0 million.

On May 16, 2022, in connection with the closing of the 2022 Credit Agreement, the outstanding debt on the May 2020 Credit Agreement was repaid in full.

Borrowings under the May 2020 Credit Agreement were subject to variable interest rates determined at LIBOR plus 3.00% to 7.09%.

We were required to make quarterly principal and interest payments through May 14, 2026.

Under the terms of the May 2020 Credit Agreement, we were subject to a requirement to maintain a 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.

We were in compliance with the financial covenants since the inception of the May 2020 Credit Agreement through payoff.

2022 Credit Agreement

On May 4, 2022, LifeStance Health Holdings, Inc., one of our subsidiaries, entered into the 2022 Credit Agreement.

The 2022 Credit Agreement establishes commitments in respect of a senior secured term loan facility of $200.0 million (the “Term Loan Facility”), a senior secured revolving loan facility of up to $50.0 million (the “Revolving Facility”) and a senior secured delayed draw term loan facility of up to $100.0 million (the “Delayed Draw Term Loan Facility”).

The loans under the Term Loan Facility and the Delayed Draw Term Loan Facility bear interest at a rate per annum equal to (x) adjusted term SOFR (which adjusted term SOFR is subject to a minimum of 0.75%) plus an applicable margin of 4.50% or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% above the federal funds effective rate and (iii) one-month adjusted term SOFR (which adjusted term SOFR is subject to a minimum of 0.75%) plus 1.00%) plus an applicable margin of 3.50%.

The loans under the Revolving Facility bear interest at a rate per annum equal to (x) adjusted term SOFR plus an applicable margin of 3.25% or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% above the federal funds effective rate and (iii) one-month adjusted term SOFR plus 1.00%) plus an applicable margin of 2.25%.

The 2022 Credit Agreement also contains a maximum First Lien Net Leverage Ratio financial maintenance covenant that requires the First Lien Net Leverage Ratio as of the last day of each fiscal quarter to not exceed 8.50:1.00.

First Lien Net Leverage Ratio means the ratio of (a) Consolidated First Lien Secured Debt outstanding as of the last day of the test period, minus the Unrestricted Cash Amount on such last day, to (b) Consolidated EBITDA for such Test Period, in each case on a pro forma basis.

As of December 31, 2022, we were in compliance with all financial covenants under the 2022 Credit Agreement.

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

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(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by (used in) operating

Net cash used in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Net (decrease) increase in cash and cash

Cash and cash equivalents, beginning of

Cash and cash equivalents, end of period

Cash Flows Provided By (Used In) Operating Activities

During the year ended December 31, 2022 (Successor), operating activities provided $52.8 million of cash, primarily impacted by our $215.6 million net loss and $285.3 million in non-cash charges.

This was partially offset by net cash used by changes in our operating assets and liabilities of $16.9 million.

During the year ended December 31, 2021 (Successor), operating activities provided $9.4 million of cash, primarily impacted by our $307.2 million net loss and offset by net cash provided by changes in our operating assets and liabilities of $2.1 million and non-cash charges of $314.5 million.

During the Successor 2020 Period, operating activities used $22.0

million of cash, primarily impacted by a $13.1 million net loss, net cash used by changes in our operating assets and liabilities of $38.3 million and offset by non-cash charges of $29.4 million.

During the Predecessor 2020 Period, 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 year ended December 31, 2022 (Successor), investing activities used $139.5 million, primarily resulting from our business acquisitions totaling $60.2 million and purchases of property and equipment of $79.3 million.

During the Successor 2020 Period, investing activities used $836.1 million of cash, primarily impacted by $646.7 million used in connection with acquisition of the Predecessor, $164.1 million used in business acquisitions and purchases of property and equipment of $25.3 million.

During the Predecessor 2020 Period, 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.

During the year ended December 31, 2021 (Successor), investing activities used $194.1 million of cash, primarily resulting from our business acquisitions totaling $99.6 million and purchases of property and equipment of $94.5 million.

Cash Flows Provided by Financing Activities

During the year ended December 31, 2022 (Successor), financing activities provided $47.3 million of cash, resulting primarily of borrowings of $257.3 million under the 2022 Credit Agreement, partially offset by payments of loan obligations of $187.8 million, payments of debt issue costs of $7.3 million, a prepayment for the debt paydown of $1.6 million and payments of contingent consideration of $12.5 million.

During the year ended December 31, 2021 (Successor), financing activities provided $313.9 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 $311.4 million, payments of debt issue costs of $2.4 million, a prepayment for the debt paydown of $8.8 million and payments of contingent consideration of $12.3 million.

During the Successor 2020 Period, financing activities provided $876.9 million of cash, primarily impacted by contributions from members related to the acquisition of the Predecessor of $633.6 million, proceeds from the May 2020 Credit Agreement of $392.1 million and contributions from members of $21.0 million.

This was partially offset by payments of loan obligations of $156.8 million, payments of debt issue costs of $8.7 million and payments of contingent consideration of $4.3 million.

During the Predecessor 2020 Period, 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 Estimates

Our consolidated financial statements have been prepared in accordance with GAAP.

The consolidated financial statements included elsewhere in this Annual Report include the results of (i) LifeStance Health, LLC, its wholly-owned subsidiaries and variable interest entities consolidated by LifeStance Health, LLC in which LifeStance Health, LLC has an interest and is the primary beneficiary for the Predecessor periods, (ii) LifeStance TopCo, L.P., its wholly-owned subsidiaries and variable interest entities consolidated by LifeStance TopCo, L.P.

The consolidated financial statements included elsewhere in this Annual Report include the results of (i) LifeStance Health, LLC, its wholly-owned subsidiaries and variable interest entities consolidated by LifeStance Health, LLC in which LifeStance Health, LLC has an interest and is the primary beneficiary for the Predecessor period, (ii) LifeStance TopCo, L.P., its wholly-owned subsidiaries and variable interest entities consolidated by LifeStance TopCo, L.P.

in which LifeStance TopCo, L.P.

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Generally, our performance obligations are satisfied over time and relate to counselling sessions that are discrete in nature and commence and terminate at the discretion of the patient and thus each individual counselling session is a performance obligation.

Revenue for performance obligations satisfied over time is recognized when the services are rendered based on

the amount to which we expect to be entitled for the services provided to the patient.

Revenue for performance obligations satisfied over time is recognized when the services are rendered based on the amount to which we expect to be entitled for the services provided to the patient.

We believe this method provides a faithful depiction of the transfer of services.

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We primarily establish fair value using the income approach based upon a discounted cash flow model.

The income approach requires the use of many assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates.

The income approach requires the use of many

assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates.

Other estimates include:

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Stock and Unit-Based Compensation

ASC 718, Compensation—Stock Compensation (“ASC 718”) requires the measurement of the cost of the employee services received in exchange for an award of equity instruments based on the grant-date fair value or, in certain

circumstances, the calculated value of the award.

Following the IPO, we account for stock-based compensation awards approved by our Board of Directors based on their estimated grant date fair value.

We estimate the fair value of RSUs based on the fair value of the underlying common stock.

As part of the Organizational Transactions, the unvested Class B Profits Interests Units that were subject to vesting upon the sale of LifeStance TopCo were converted to restricted stock that were modified to add both a market and service condition.

To determine the fair value of the market condition of the restricted stock based awards, we make highly subjective and complex input assumptions, including the expected term, volatility, the price of the underlying stock and the risk-free rate.

We account for stock-based compensation awards approved by our Board of Directors based on their estimated grant date fair value.

To determine the fair value of the market condition of stock-based awards and time-based conditions for stock options, we make highly subjective and complex input assumptions, including the expected term, volatility, the price of the underlying stock and the risk-free rate.

Changes to these input assumptions to the valuation of the modification can materially affect the fair value estimates and, ultimately, how much we recognize as stock-based compensation expense in future periods.

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These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, disposition of a significant portion of the business or other factors.

Effective in 2021, on a prospective basis, we changed our annual goodwill impairment testing date from December 31 to October 1 to better align th e testing date with our financial planning process.

Management has determined that the change in the testing date does not represent a material change to a method of applying an accounting principle as this change does not accelerate, delay, avoid or cause an impairment charge, nor does this change result in adjustments to previously issued financial statements.

ASC 350, Intangibles—Goodwill and Other (“ASC 350”) allows entities to first use a qualitative approach to test goodwill for impairment.

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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 5. Market for Registrant’s Common Equity