What changed in this filing

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Item 9A. Controls and Procedures

2023-03-09 compared with 2022-03-17 · 684 added, 764 removed, 752 unchanged (66% of the section changed)

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Management’s Annual Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer and the oversight of our audit committee, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022.

In assessing the effectiveness of our internal control over financial reporting, our management used the framework established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on that assessment and due to the material weaknesses described below, our management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022.

Attestation Report of Registered Public Accounting Firm

This annual report does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established for “emerging growth companies”

under the Jumpstart Our Business Startups (JOBS) Act.

As such, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002.

Previously Reported Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As previously reported in the Final Prospectus, in connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting, which continue to exist as of December 31, 2021.

or detected on a timely basis.

As previously reported in the Annual Report on Form 10-K for the year ended December 31, 2021, in connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting, which continue to exist as of December 31, 2022.

The material weaknesses we identified were as follows:

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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.

As of December 31, 2022, our remediation measures are ongoing and include the following:

hired additional accounting and IT personnel to enhance our technical reporting, transactional accounting, and IT capabilities.

We designed and implemented controls to support training, development, and technical research capabilities for those personnel, along with development and implementation of policies and procedures to support the external financial reporting functions.

We continue to evaluate our staffing needs and plan to hire additional personnel as necessary to support our operations;

performed detailed risk assessments for significant financial processes to identify, design, and implement control activities related to internal control over financial reporting;

developed and implemented controls related to the formalization of our accounting policies and procedures and financial reporting;

development and implementation of controls related to significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over account reconciliations, segregation of duties and the preparation and review of journal entries;

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

developed and implemented 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 having conflicting access, a periodic review of the underlying activities is performed by an independent person who does not have such conflicting access;

developed and implemented controls related to computer operations surrounding critical batch jobs and data backups;

development and implementation of program change management controls, including new or material modifications, related to testing, authorization and implementation of program and data changes affecting financial IT applications and accounting records.

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.

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We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting.

Other than the changes to our internal control over financial reporting described in “Remediation Plan for Material Weaknesses”

above, there were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Disclosure Controls and Procedures

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Consolidated Balance Sheets

Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss)

Consolidated Statements of Changes in Redeemable Units and Stockholders'/Members' Equity and Consolidated Statements of Changes in Redeemable Convertible Preferred Units and Members' Deficit

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statement of Changes in Stockholders' Equity, Consolidated Statements of Changes in Redeemable Units and Stockholders'/Members' Equity and Consolidated Statement of Changes in Redeemable Convertible Preferred Units and Members' Deficit

Consolidated Statements of Cash Flows

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Description of Securities

Credit Agreement, dated as of May 14, 2020, among Lynnwood Mergersub, Inc., LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., and Capital One, National Association

First Amendment to Credit Agreement, dated November 4, 2020, by and among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., and Capital One, National Association

Second Amendment to Credit Agreement, dated February 1, 2021, by and among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., and Capital One, National Association

Third Amendment to Credit Agreement, dated April 30, 2021, by and among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., and Capital One, National Association

Registration Rights Agreement, dated as of June 9, 2021, by and among the Company and each of the other persons from time to time party thereto

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Stock Transfer Restriction Agreement, dated as of June 9, 2021, by and among the Company and each of the other person from time to time party thereto

Amended and Restated Employment Agreement, dated May 14, 2020, between LifeStance Health Inc., and Michael K.

First Amendment to Amended and Restated Employment Agreement, dated June 1, 2020, between LifeStance Health, Inc.

and Michael K.

Amended and Restated Employment Agreement, dated May 14, 2020, between LifeStance Health, Inc.

and Gwendolyn H.

Amended and Restated Employment Agreement, dated May 14, 2020, between LifeStance Health, Inc.

and Danish Qureshi

Independent Consulting Agreement, dated June 1, 2020, among LifeStance Health, Inc., Alert5 Consulting LLC and Michael K.

LifeStance Health Group, Inc.

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Form of Management Services Agreement with Affiliated Practices

Form of RSU Agreement under the 2021 Plan

Form of Notice of Amended Award Terms for Class B Unit Award Agreement

Credit Agreement, dated as of May 4, 2022, among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., and Capital One, National Association

Separation and General Release Agreement, dated as of May 22, 2022, between LifeStance Health Group, Inc.

and Gwendolyn Booth

Independent Contractor Agreement, dated as of July 1, 2022, between LifeStance Health Group, Inc.

and Gwendolyn Booth

Amendment to Restricted Stock Unit Award Agreement, dated as of June 30, 2022, between LifeStance Health Group, Inc.

and Gwendolyn Booth

Amendment to Stock Transfer Restriction Agreement, dated as of June 30, 2022, between LifeStance Health Group, Inc.

and Gwendolyn Booth

Severance and Change in Control Policy

Separation and General Release Agreement, dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Consulting Agreement, dated September 8, 2022, between LifeStance Health Group, Inc., Alert5 Consulting LLC, and Michael K.

Amendment to Restricted Stock Unit Award Agreement, dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Description of Exhibit Incorporated Herein by Reference

Filed Herewith

Amendment to Stock Transfer Restriction Agreement, dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Amendment to Time and Performance-Based Restricted Stock Unit Award Agreement (Time-Based Award), dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Amendment to Time and Performance-Based Restricted Stock Unit Award Agreement (Performance-Based Award), dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Amendment to the Partnership Interest Award Agreement, dated as of September 7, 2022, between LifeStance Health Group, Inc.

and Michael K.

Employment Agreement, dated September 7, 2022, between LifeStance Health Group, Inc.

and Kenneth Burdick

Letter Agreement, dated September 7, 2022, between LifeStance Health Group, Inc.

and Danish Qureshi

Form of Non-Qualified Stock Option Agreement

Form of RSU Agreement (Time) (Sell to Cover) under the 2021 Plan

Form of RSU Agreement (Time and Performance) (Sell to Cover) under the 2021 Plan

Employment Agreement, dated as of November 2, 2022, between LifeStance Health Group, Inc.

and David Bourdon

Stock Award Agreement, dated as of November 10, 2022, between LifeStance Health Group, Inc.

and David Bourdon

Transition Agreement, dated as of November 2, 2022, between LifeStance Health Group, Inc.

Michael Bruff

Amendment to Partnership Interest Award Agreement, dated as of November 2, 2022, between LifeStance Health Group, Inc.

Michael Bruff

Amendment to Time and Performance Based Restricted Stock Unit Award Agreement (Time-Based Award), dated as of November 2, 2022, between LifeStance Health Group, Inc.

Michael Bruff

List of subsidiaries of LifeStance Health Group, Inc.

Consent of PricewaterhouseCoopers LLP

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Inline XBRL Instance Document

Description of Exhibit Incorporated Herein by Reference

Filed Herewith

Inline XBRL Taxonomy Extension Schema Document

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for the year ended December 31, 2022 formatted in Inline XBRL

* Filed herewith.

+ Indicates a management contract or compensatory plan, contract or arrangement.

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March 9, 2023

/s/ Michael K.

/s/ Kenneth Burdick

Kenneth Burdick

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

/s/ Michael K.

Chief Executive Officer, President and Director

/s/ Kenneth Burdick

Chief Executive Officer and Chairman

March 9, 2023

Kenneth Burdick

(Principal Executive Officer)

Michael Bruff

Chief Financial Officer

/s/ David Bourdon

Chief Financial Officer and Treasurer

March 9, 2023

Michael Bruff

David Bourdon

(Principal Financial and Accounting Officer)

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Reports of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of December 31, 2021 (Successor) and December 31, 2020 (Successor)

Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) for the year ended December 31, 2021 (Successor), the period from April 13, 2020 to December 31, 2020 (Successor), the period from January 1, 2020 to May 14, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor)

Consolidated Statements of Changes in Redeemable Units and Stockholders'/Members' Equity for the year ended December 31, 2021 (Successor) and the period from April 13, 2020 to December 31, 2020 (Successor) and Consolidated Statements of Changes in Redeemable Convertible Preferred Units and Members' Deficit for the period from January 1, 2020 to May 14, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor)

Consolidated Statements of Cash Flows for the year ended December 31, 2021 (Successor), the period from April 13, 2020 to December 31, 2020 (Successor), the period from January 1, 2020 to May 14, 2020 (Predecessor) and the year ended December 31, 2019 (Predecessor)

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statement of Changes in Stockholders' Equity, Consolidated Statements of Changes in Redeemable Units and Stockholders'/Members' Equity, and Consolidated Statement of Changes in Redeemable Convertible Preferred Units and Members' Deficit

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of LifeStance Health Group, Inc.

and its subsidiaries (Successor) (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income/(loss) and comprehensive income/(loss), of changes in redeemable units and stockholders’/members’

equity and of cash flows for the period from April 13, 2020 through December 31, 2020, and for the year ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the period from April 13, 2020 through December 31, 2020 and for the year ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (Successor) (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of changes in redeemable units and stockholders'/members' equity and of cash flows for the years ended December 31, 2022 and 2021, and for the period from April 13, 2020 to December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, and for the period from April 13, 2020 to December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2022.

Basis for Opinion

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Opinion on the Financial Statements

We have audited the accompanying consolidated statements of income/(loss) and comprehensive income/(loss), of changes in redeemable convertible preferred units and members’

deficit and of cash flows of LifeStance Health, LLC and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2020 to May 14, 2020, and for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2020 to May 14, 2020 and for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated statements of operations and comprehensive loss, of changes in redeemable convertible preferred units and members’

deficit and of cash flows of LifeStance Health, LLC and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2020 to May 14, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2020 to May 14, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

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CONSOLIDATED BAL ANCE SHEETS

AS OF December 31, 2021 AND 2020 (Successor)

(In thousands, except for par value)

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Property and equipment, net

Right-of-use assets

Intangible assets, net

Other noncurrent assets

Total noncurrent assets

LIABILITIES, REDEEMABLE UNITS AND STOCKHOLDERS'/MEMBERS’

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

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Current portion of contingent consideration

Operating lease liabilities, current

Other current liabilities

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Long-term debt, net

Other noncurrent liabilities

Contingent consideration, net of current portion

Operating lease liabilities, noncurrent

Deferred tax liability, net

Other noncurrent liabilities

Total noncurrent liabilities

Total liabilities

COMMITMENT AND CONTINGENCIES (see Note 18 )

REDEEMABLE UNITS

Redeemable Class A units –

0 and 35,000 units authorized, issued and outstanding as of December 31,

2021 and December 31, 2020, respectively

STOCKHOLDERS’/MEMBERS’

Common units A-1 –

0 and 959,563 units authorized, issued and outstanding as of December 31,

2021 and December 31, 2020, respectively

Common units A-2 –

0 and 49,946 units authorized, issued and outstanding as of December 31, 2021

and December 31, 2020, respectively

Common units B –

0 and 179,000 units authorized as of December 31, 2021 and December 31, 2020,

respectively;

0 units issued and outstanding as of December 31, 2021 and December 31, 2020

COMMITMENTS AND CONTINGENCIES (see Note 16 )

STOCKHOLDERS’

Preferred stock –

par value $ 0.01 per share;

25,000 and 0 shares authorized as of December 31, 2021

and December 31, 2020, respectively;

0 shares issued and outstanding as of December 31, 2021 and

December 31, 2020

25,000 shares authorized as of

December 31, 2022 and December 31, 2021;

0 shares issued and outstanding as

of December 31, 2022 and December 31, 2021

Common stock –

par value $ 0.01 per share;

800,000 and 0 shares authorized as of December 31, 2021

and December 31, 2020, respectively;

374,255 and 0 shares issued and outstanding as of

December 31, 2021 and December 31, 2020, respectively

800,000 shares authorized as of

December 31, 2022 and December 31, 2021;

375,964 and 374,255 shares

issued and outstanding as of December 31, 2022 and December 31, 2021,

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total stockholders'/members’

Total liabilities, redeemable units and stockholders’/members’

Total stockholders' equity

Total liabilities and stockholders’

The accompanying Notes are an integral part of these consolidated financial statements.

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME/(LO SS) AND COMPREHENSIVE INCOME/(LOSS)

FOR THE YEAR ENDED December 31, 2021 (Successor) , THE period from April 13, 2020 to December 31, 2020 (Successor) , THE period from January 1, 2020 to May 14, 2020 (Predecessor) AND THE YEAR ENDED December 31, 2019 (Predecessor)

consolidated statements of operations and comprehensive loss

(In thousands, except for Net Loss per Share)

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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)

Accretion of Redeemable Class

Accretion of Series A-1

redeemable convertible

preferred units (Note 14)

Cumulative dividend on Series

A redeemable convertible

preferred units (Note 14)

NET LOSS AVAILABLE TO

Accretion of Redeemable Class A units

Accretion of Series A-1 redeemable

convertible preferred units (Note 12)

Cumulative dividend on Series A

redeemable convertible preferred

units (Note 12)

NET LOSS AVAILABLE TO COMMON

STOCKHOLDERS/MEMBERS

NET LOSS PER SHARE, BASIC

Weighted-average shares used to

compute basic and diluted net

loss per share

NET LOSS PER SHARE, BASIC AND

Weighted-average shares used to compute

basic and diluted net loss per share

OTHER COMPREHENSIVE INCOME

Unrealized gains on cash flow hedge, net

COMPREHENSIVE LOSS

The accompanying Notes are an integral part of these consolidated financial statements.

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE UNITS AND STOCKHOLDERS’/MEMBERS’

E QUITY FOR THE YEAR ENDED December 31, 2021 (Successor) AND THE period from April 13, 2020 to December 31, 2020 (Successor) AND CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’

DEFICIT FOR THE period from January 1, 2020 to May 14, 2020 (Predecessor) AND THE YEAR ENDED December 31, 2019 (Predecessor)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

Accumulated Other Comprehensive

Total Stockholders'

Balances at December 31, 2021

Issuance of common stock upon

vesting of restricted stock units

Surrender of common stock

Other comprehensive income

Stock-based compensation expense

Balances at December 31, 2022

The accompanying Notes are an integral part of these consolidated financial statements.

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE UNITS AND STOCKHOLDERS'/MEMBERS' EQUITY

(In thousands)

Class A Redeemable Units

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Conversion of unvested Class

B Profits Interests to

restricted stock upon closing

of initial public offering

B Profits Interests to restricted

stock upon closing of initial

public offering

Issuance of common stock

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LifeStance Health

Issuance of common stock

upon vesting of restricted

Issuance of common stock upon

vesting of restricted stock

Stock and unit-based

3 unchanged sentences

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE UNITS AND STOCKHOLDERS’/MEMBERS’

EQUITY FOR THE YEAR ENDED December 31, 2021 (Successor) AND THE period from April 13, 2020 to December 31, 2020 (Successor) AND CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’

DEFICIT FOR THE period from January 1, 2020 to May 14, 2020 (Predecessor) AND THE YEAR ENDED December 31, 2019 (Predecessor)

CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE UNITS AND MEMBERS’

EQUITY (Successor) AND CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS' DEFICIT (Predecessor)

(In thousands)

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LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE UNITS AND STOCKHOLDERS’/MEMBERS’

EQUITY FOR THE YEAR ENDED December 31, 2021 (Successor) AND THE period from April 13, 2020 to December 31, 2020 (Successor) AND CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND MEMBERS’

DEFICIT FOR THE period from January 1, 2020 to May 14, 2020 (Predecessor) AND THE YEAR ENDED December 31, 2019 (Predecessor)

(In thousands)

Series A Redeemable Convertible Preferred Units

Series A-1 Redeemable Convertible Preferred Units

Class A Common Units

Class C Common Units

Total Members'

Balances at January 1, 2019

Issuance of Series A redeemable

convertible preferred units for

acquisitions of businesses

Exercise of unit-based awards

Unit-based compensation

Accretion of Series A-1

redeemable convertible

preferred units

Balances at December 31, 2019

The accompanying Notes are an integral part of these consolidated financial statements.

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CAS H FLOWS

FO R THE YEAR ENDED December 31, 2021 (SUCCESSOR), THE period from April 13, 2020 to December 31, 2020 (Successor), THE period from January 1, 2020 to May 14, 2020 (Predecessor) AND THE YEAR ENDED December 31, 2019 (Predecessor)

(In thousands)

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CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

Adjustments to reconcile net (loss) income to net cash

Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

Depreciation and amortization

Non-cash operating lease costs

Stock and unit-based compensation

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Loss on debt extinguishment

Amortization of debt issue costs

Amortization of discount and debt issue costs

Loss (gain) on remeasurement of contingent consideration

Loss on disposal of assets

Endowment of shares to LifeStance Health Foundation

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Accrued payroll expenses

Operating lease liabilities

Other accrued expenses

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Issuance of common units to new investors

Repurchase of Series A redeemable convertible preferred units

Proceeds from long-term debt

Repurchase of Series A redeemable convertible preferred

Proceeds from long-term debt, net of discount

Payments of debt issue costs

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Payments of contingent consideration

Taxes related to net share settlement of equity awards

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH

NET (DECREASE) INCREASE IN CASH AND CASH

Cash and Cash Equivalents - Beginning of period

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END OF PERIOD

The accompanying Notes are an integral part of these consolidated financial statements.

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

December 31, 2022

December 31, 2021

December 31, 2020

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

Cash paid for interest

Cash paid for taxes

Cash paid for taxes, net of refunds

SUPPLEMENTAL DISCLOSURES OF NON CASH

INVESTING AND FINANCING ACTIVITIES

Equipment financed through capital leases

Contingent consideration incurred in acquisitions of businesses

Equipment financed through finance leases

Contingent consideration incurred in acquisitions of

Acquisition of property and equipment included in liabilities

Issuance of Series A redeemable convertible preferred units for

acquisitions of businesses

Issuance of common units for convertible promissory note

Surrender of common stock

Issuance of common units for convertible promissory

note conversion

Issuance of common units for acquisitions of businesses

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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 1,046,196 of LifeStance TopCo’s outstanding redeemable and common Class A units and 152,620 Class B units (the "Class B Common Units", "Profits Interests Units" or "Profits Interests") were contributed in exchange for 310,083 shares of common stock of LifeStance Health Group plus 30,766 shares of common stock issued as restricted stock subject to vesting.

As a result of this contribution and exchange, the Company reclassified $ 71,648 of redeemable units and $ 1,008,688 of common units to additional paid-in capital and $ 3,408 to common stock on the Company’s consolidated balance sheets.

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Prior to the IPO restructuring transactions, LifeStance Health Group had no operations .

LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share/unit amounts)

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Significant estimates and assumptions by management may affect total revenue impacted by variable consideration and discounts, price concessions, allowance for credit losses, the carrying value of long-lived assets (including goodwill and intangible assets), acquisition accounting, the calculation of a contingent liability in connection with an acquisition, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, payor settlements, contingencies, litigation and related legal accruals and the value attributed to employee stock and unit-based awards.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting.

That method requires that the purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date.

The consideration the Company transfers in exchange for the acquiree may also include equity interests which the Company records at fair value at closing of the transaction.

Transaction costs incurred as a result of the acquisitions are expensed in the Company’s consolidated financial statements in the period incurred.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, the Company makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, and discount rates.

Fair value estimates are based on the assumptions the Company believes a market participant would use in pricing the asset or liability.

Management’s estimates of fair value are based upon assumptions determined to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the estimates.

During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

The measurement period provides a reasonable period of time to determine the value of identifiable assets acquired, liabilities assumed, consideration transferred, equity interests, and goodwill.

New information that gives rise to a measurement period adjustment should relate to events or circumstances existing at the acquisition date.

Information pertaining to events that occur after the acquisition date are not measurement period adjustments.

All changes that do not qualify as measurement period adjustments are included in current period earnings.

The Company includes the results of all acquisitions in the consolidated financial statements from the date of acquisition.

LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share/unit amounts)

Segment Information

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Accordingly, the Company has determined that it operates in a single operating and reportable segment, mental health services, for all periods presented.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with remaining maturities of three months or less at the time of acquisition.

Cash and cash equivalents consist of demand deposits held with financial institutions.

Cash is stated at cost, which approximates fair value.

The Company maintains cash balances at financial institutions which are insured by the Federal Deposit Insurance Corporation.

At times, the amounts on deposit may exceed the insured limit.

Variable Interest Entities

The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”).

These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available information.

If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements.

The primary beneficiary of a VIE is the party that meets both of the following criteria:

(i) has the power to make decisions that most significantly affect the economic performance of the VIE;

and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.

The Company acquires and operates certain care centers which are deemed to be Friendly-Physician Entities (“FPEs”).

As part of an FPE acquisition, the Company acquires 100 % of the non-medical assets, however due to legal requirements the physician-owners must retain 100% of the equity interest.

The Company’s agreements with FPEs generally consist of both a Management Service Agreement, which provide for various administrative and management services to be provided by the Company to the FPE, and Stock Transfer Restriction (“STR”) agreements with the physician-owners of the FPEs, which provide for the transition of ownership interest of the FPEs under certain conditions.

The outstanding voting equity instruments of the FPEs are owned by the nominee shareholders appointed by the Company under the terms of the STR.

The Company has the right to receive income as an ongoing management fee, which effectively absorbs all of the residual interests and has also provided financial support through loans to the FPEs.

The Company has exclusive responsibility for the provision of all nonmedical services including facilities, technology and intellectual property required for the day-to-day operation and management of each of the FPEs, and makes recommendations to the FPEs in establishing the guidelines for the employment and compensation of the physicians and other employees of the FPEs.

In addition, the STR provides that the Company has the right to designate a person(s) to purchase the equity interest of the FPE for a nominal amount in the event of a succession event at the Company’s discretion.

Based on the provisions of these agreements, the Company determined that the FPEs are VIEs due to its equity holder having insufficient capital at risk, and the Company has a variable interest in the FPEs.

The contractual arrangements described above allow the Company to direct the activities that most significantly affect the economic performance of the FPEs.

Accordingly, the Company is the primary beneficiary of the FPEs and consolidates the FPEs under the VIE model.

Furthermore, as a direct result of nominal initial equity contributions by the physicians, the financial support the Company provides to the FPEs (e.g., loans) and the provisions of the contractual arrangements and nominee shareholder succession arrangements described above, the interests held by noncontrolling interest holders lack economic substance and do not provide them with the ability to participate in the residual profits or losses generated by the FPEs.

Therefore, all income and expenses recognized by the FPEs are allocated to the Company.

The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.

As noted previously, the Company acquires 100% of the non-medical assets of the VIEs.

The aggregate carrying values of the VIEs total assets and total liabilities not purchased by the Company but included on the consolidated balance sheets were not material at December 31, 2022 and 2021 (Successor) .

Total Revenue

22 unchanged sentences

The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions.

Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient

LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share/unit amounts)

service revenue in the period of the change.

Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change.

Adjustments arising from a change in the estimate of the transaction price were not material for all periods presented.

5 unchanged sentences

Such amounts determined to be financial assistance are not reported as revenue.

Center Costs, Excluding Depreciation and Amortization

Center costs, excluding depreciation and amortization includes the costs the Company incurs to operate its centers, consisting primarily of salaries, wages and employee benefits for clinicians and patient support, occupancy costs such as rent and utilities,

medical supplies, insurance and other operating expenses.

Center costs, excluding depreciation and amortization excludes stock and unit-based compensation.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less at the time of purchase.

Cash and cash equivalents consist of demand deposits held with financial institutions.

Cash and cash equivalents are stated at cost, which approximates fair value.

The Company maintains cash balances at financial institutions which are insured by the Federal Deposit Insurance Corporation.

At times, the amounts on deposit may exceed the insured limit.

Patient Accounts Receivable

8 unchanged sentences

Revenue and cash flows from the Medicare program are dependent upon the rates set by, and the promptness of payment from, federally administered programs, and in management’s opinion do not create a significant credit risk to the Company.

Property and Equipment

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation.

6 unchanged sentences

Assets acquired under capital leases, and leasehold improvements, are amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful lives of the assets, generally 5 to 10 years .

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statements of income/(loss) and comprehensive income/(loss) in the period realized.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized.

The Company determines if a contract meets the definition of a lease at inception and evaluates the lease classification at that time.

The Company has elected not to recognize on the consolidated balance sheet leases with terms of one year or less.

Options to extend or terminate the lease are included in the determination of the lease term when it is reasonably certain that the Company will exercise such options.

When the implicit rate is unknown, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of the lease payments.

Lease liabilities represent the obligation to make lease payments and right-of-use assets represent the right to use the underlying asset during the lease term.

Lease liabilities and their corresponding right-of-use assets are recognized in the consolidated balance sheets as the commencement date based on the present value of the future minimum lease payments over the estimated lease term.

Right-of-use assets are adjusted for payments made at or before the commencement date and tenant incentives under the lease.

When a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use assets and the lease liabilities.

The effects of these escalation clauses or concessions have been reflected in lease expenses on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred.

The Company separately allocates the lease (e.g., fixed lease payments for right-to-use land, building, etc.) and non-lease components (e.g., common area maintenance) for its leases.

Operating lease and variable lease costs are included in center costs, excluding depreciation and amortization and general and administrative expenses in the consolidated statements of operations and comprehensive loss.

Variable lease costs are the portion of lease payments that are not fixed over the lease term.

Variable lease costs

include real estate payments that are adjusted periodically for inflation or other variables as well as payments for taxes and insurance.

The Company expenses variable lease costs in the period incurred.

Operating leases are included in right-of-use assets, operating lease liabilities, current and operating lease liabilities, noncurrent on the Company’s consolidated balance sheets.

Finance leases are included in property and equipment, net, other current liabilities, and other noncurrent liabilities on the Company’s consolidated balance sheets.

Finance leases are not material.