Behavioral health company LifeStance Health (NASDAQ:LFST) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 16% year on year to $325.5 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $330 million was less impressive, coming in 2.3% below expectations. Its GAAP loss of $0.02 per share was $0.02 above analysts’ consensus estimates.
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LifeStance Health Group (LFST) Q4 CY2024 Highlights:
- Revenue: $325.5 million vs analyst estimates of $314.1 million (16% year-on-year growth, 3.6% beat)
- EPS (GAAP): -$0.02 vs analyst estimates of -$0.04 ($0.02 beat)
- Adjusted EBITDA: $31.92 million vs analyst estimates of $23.21 million (9.8% margin, 37.5% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $1.42 billion at the midpoint, beating analyst estimates by 2.6% and implying 13.5% growth (vs 18.6% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $140 million at the midpoint, above analyst estimates of $122.2 million
- Operating Margin: 0.3%, up from -11.5% in the same quarter last year
- Free Cash Flow Margin: 17.2%, up from 1.9% in the same quarter last year
- Sales Volumes rose 11.7% year on year (18% in the same quarter last year)
- Market Capitalization: $2.87 billion
“The team delivered exceptional performance in 2024,” said Ken Burdick, Chairman and CEO of LifeStance.
Company Overview
Founded in 2017, LifeStance Health (NASDAQ:LFST) provides outpatient mental health services, including therapy, psychiatry, and digital health solutions.
Outpatient & Specialty Care
The outpatient and specialty care industry delivers targeted medical services in non-hospital settings that are often cost-effective compared to inpatient alternatives. This means that they are more desired as rising healthcare costs and ways to combat them become more and more top-of-mind. Outpatient and specialty care providers boast revenue streams that are stable due to the recurring nature of treatment for chronic conditions and long-term patient relationships. However, their reliance on government reimbursement programs like Medicare means stroke-of-the-pen risk. Additionally, scaling a network of facilities can be capital-intensive with uneven return profiles amid competition from integrated healthcare systems. Looking ahead, the industry is positioned to grow as demand for outpatient services expands, driven by aging populations, a rising prevalence of chronic diseases, and a shift toward value-based care models. Tailwinds include advancements in medical technology that support more complex procedures in outpatient settings and the increasing focus on preventive care, which can be aided by data and AI. However, headwinds such as reimbursement rate cuts, labor shortages, and the financial strain of digitization may temper growth.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, LifeStance Health Group’s 42.6% annualized revenue growth over the last five years was incredible. Its growth beat the average healthcare company and shows its offerings resonate with customers.
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. LifeStance Health Group’s annualized revenue growth of 20.6% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong. 
LifeStance Health Group also reports its number of clinicians, which reached 7,424 in the latest quarter. Over the last two years, LifeStance Health Group’s clinicians averaged 15.9% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases. 
This quarter, LifeStance Health Group reported year-on-year revenue growth of 16%, and its $325.5 million of revenue exceeded Wall Street’s estimates by 3.6%. Company management is currently guiding for a 9.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and indicates the market sees success for its products and services.
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Operating Margin
Although LifeStance Health Group broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 15% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
Looking at the trend in its profitability, LifeStance Health Group’s operating margin decreased by 6.1 percentage points over the last five years, but it rose by 21.9 percentage points on a two-year basis. Still, shareholders will want to see LifeStance Health Group become more profitable in the future.
In Q4, LifeStance Health Group’s breakeven margin was up 11.8 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
LifeStance Health Group’s earnings losses deepened over the last four years as its EPS dropped 6.3% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, LifeStance Health Group’s low margin of safety could leave its stock price susceptible to large downswings.
In Q4, LifeStance Health Group reported EPS at negative $0.02, up from negative $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast LifeStance Health Group’s full-year EPS of negative $0.16 will reach break even.
Key Takeaways from LifeStance Health Group’s Q4 Results
We were impressed by LifeStance Health Group’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also excited its EPS outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue guidance for next quarter missed significantly. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 6.3% to $7.97 immediately following the results.
Indeed, LifeStance Health Group had a rock-solid quarterly earnings result, but is this stock a good investment here? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.