LIFESTANCE HEALTH GROUP, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q and our audited financial statements and the accompanying notes as
well as "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report on Form 10-K
for the year ended December 31, 2021. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Quarterly Report on Form
10-Q, including information with respect to our plans and strategy for our
business, includes forward-looking statements that involve risks and
uncertainties. As a result of many factors, including those factors set forth
under "Risk Factors" Part II, Item 1A in this Quarterly Report on Form 10-Q as
well as those discussed in the Annual Report on Form 10-K for the year ended
December 31, 2021, our actual results could differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.

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

Our business

We are dedicated to improving the lives of our patients by reimagining mental
health through a disruptive, tech-enabled in-person and virtual care delivery
model built to expand access and affordability, improve outcomes and lower
overall health care costs. We are one of the nation's largest outpatient mental
health platforms based on the number of clinicians we employ through our
subsidiaries and our affiliated practices and our geographic scale, employing
5,431 licensed mental health clinicians as of September 30, 2022. We combine a
personalized, digitally-powered patient experience with differentiated clinical
capabilities and in-network insurance relationships to fundamentally transform
patient access to mental health treatment. By revolutionizing the way mental
health care is delivered, we believe we have an opportunity to improve the lives
and health of millions of individuals.

Our model is designed to empower each of the key stakeholders in the healthcare ecosystem – patients, clinicians, payers, and specialist and primary care physicians – in alignment with our shared goal of delivering better outcomes for patients and to provide high quality mental health care.

Patients - We are the front-door to comprehensive outpatient mental health care.
Our clinicians offer patients comprehensive services to treat mental health
conditions across the clinical spectrum. Our in-network payor relationships
improve patient access by allowing patients to access care without significant
out-of-pocket cost or delays in receiving treatment. Our personalized,
data-driven comprehensive care meets patients where they are, through convenient
virtual and in-person settings. We support our patients throughout their care
continuum with purpose-built technological capabilities, including online
assessments, digital provider communication, and seamless internal referral and
follow-up capabilities.

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

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

Primary care and specialist physicians - We collaborate with primary care and
specialist physicians to enhance patient care. Primary care is an important
setting for the treatment of mental health conditions-primary care physicians
are often the sole contact for 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.

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Impact of COVID-19

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.

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

Key Factors Affecting Our Results

Increase center capacity and visits to existing centers

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

Our clinicians

As of September 30, 2022, we employed 5,431 psychiatrists, advanced practice
nurses, psychologists and therapists through our subsidiaries and affiliated
practices. We generate revenue on a per visit basis as clinical services are
rendered by our clinicians. As our existing centers mature, we grow our physical
capacity by leveraging our hybrid clinical model to increase our average
clinicians per center, effectively expanding the four walls of our centers.
Recruiting new clinicians and retaining existing clinicians in our existing
centers enables us to see more patients per center by expanding our patient
visit capacity. We believe our fully employed model offers a superior value
proposition compared to independent practice. Our network relationships provide
clinicians with ready access to patients. We also enable clinicians to manage
their own patient volumes. Our platform promotes a clinically-driven
professional culture and streamlines patient access and care delivery, while
optimizing practice administration processes through technology. We believe we
are an employer of choice in mental health, allowing us to employ highly
qualified clinicians.

We believe we have significant opportunity to grow our employed clinician
base-we estimate there are approximately 650,000 mental health clinicians in the
United States, providing us with a meaningful runway to grow from our current
base of 5,431 clinicians employed through our subsidiaries and affiliated
practices, as of September 30, 2022. To capitalize on this opportunity, we have
developed a rigorous and exclusive in-house national clinician recruiting model
that works closely with our regional clinical teams to select the best
candidates and fulfill capacity in a timely manner. As we grow our clinician
base, we can grow our business, expand access to our patients and our payors and
invest in our platform to further reinforce our differentiated offering to
clinicians. We have available physical capacity to add clinicians to our
existing centers, as well as an opportunity to add new clinicians with the
roll-out of de novo centers and acquire additional clinicians through our
acquisition strategy. Our virtual care offering also allows clinicians to see
more patients without investments in incremental physical space, expanding our
patient visit capacity beyond in-person only levels.

Our patients

We believe our ability to attract and retain patients to drive growth in our
visits and meet the availability of our clinician base will enable us to grow
our revenue. We believe we have a significant opportunity to increase the number
of patients we serve in our existing markets. In 2021, our clinicians treated
more than 570,000 unique patients through 4.6 million visits. We believe our
ability to deliver more accessible, flexible, affordable and effective mental
health care is a key driver of our patient growth. We believe we provide a
superior and differentiated mental health care experience that integrates
virtual and in-person care to deliver care in a convenient way for our patients,
meeting our patients where they are. Our in-network payor relationships allow
our patients to access care without significant out-of-pocket cost or delays in
receiving treatment. We treat mental health conditions across the clinical
spectrum through a clinical approach that delivers improved patient outcomes. We
support our patients throughout their care continuum with purpose-built
technological capabilities, including online assessments, digital provider
communication, and seamless internal referral and follow-up capabilities.

We utilize multiple strategies to add new patients to our platform, including
our primary care and specialist physician relationships, internal referrals from
our clinicians, our payor relationships and our dedicated marketing efforts. We
have established a large network of national, regional and local payors that
enables their members to be referred to us as patients. Payors refer patients to
our platform to drive improvement in health outcomes for their members,
reduction in total medical costs and increased member satisfaction and
retention. Within our markets, we partner with primary care practice groups,
specialists, health systems and academic institutions to refer patients to our
centers and clinicians. Our local marketing teams build and maintain
relationships with our

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referring partner networks to create awareness of our platform and services,
including the opening of new centers and the introduction of newly hired
clinicians with appointment availability. We also use online marketing to
develop our national brand to increase brand awareness and promote additional
channels of patient recruitment.

Our primary care and medical specialist referral relationships

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

Our payers

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

Expand our central base in existing and new markets

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

De Novo Constructions

Our de novo center strategy is a central component of our organic growth engine
to build our capacity and increase density in our existing MSAs. From our
inception in 2017 through September 30, 2022, we have successfully opened 307 de
novo centers, including 81 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 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.

In 2021, we transitioned to a more sustainable design for all new de novo centers that reimagine the mental health care experience for patients and clinicians while reinforcing our commitment to sustainability.

Acquisitions

We have built a proprietary pipeline of acquisition targets, providing us with
significant opportunities to scale through potential acquisitions. We believe
the highly fragmented nature of the mental health market provides us with a
meaningful opportunity to execute on our acquisition playbook. We seek to
acquire select practices that meet our standards of high-quality clinical care
and align with our mission. We believe our guiding principle of creating a
national platform built with a patient and clinician focus makes us a partner of
choice for smaller, independent practices. Our acquisition strategy is deployed
both to enter new markets and in our existing markets. In new markets,
acquisitions allow us to establish a presence with high-quality practices with a
track record of clinical excellence and in-network payor relationships that can
be integrated into our national platform. In existing markets, acquisitions
allow

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us to grow our geographic reach and clinician base to expand patient access. For
newly acquired centers, we typically fully integrate them into our operational
and technology infrastructure within four to six months following an
acquisition.

Center margin

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

Investments in Growth

We will continue to focus on long-term growth through investments in our centers
and technology. In addition, we expect our general and administrative expenses
to increase in the foreseeable future due to our planned investments in growth
initiatives and public company infrastructure.

Key Indicators and Non-GAAP Financial Measures

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

                                      Three Months Ended September 30,      

Nine month period ended September 30,

                                        2022                   2021                  2022                   2021
(in thousands)
Total revenue                      $       217,560       $         173,835     $        630,182       $        477,516
Revenue growth                                  25 %                    70 %                 32 %                    *
Loss from operations                       (38,839 )              (124,668 )           (164,162 )             (172,594 )
Center Margin                               60,293                  52,052              174,325                147,258
Net loss                                   (37,853 )              (120,452 )           (168,908 )             (199,167 )
Adjusted EBITDA                             15,379                  10,694               42,493                 37,813

* Denotes not significant 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 from operations or net loss, and, as
calculated, may not be comparable to companies in other industries or within the
same industry with similarly titled measures of performance. Therefore, non-GAAP
measures should be considered in addition to, not as a substitute for, or in
isolation from, measures prepared in accordance with GAAP.

Center margin

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

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

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The following table provides a reconciliation of operating loss, the most comparable GAAP financial measure, to central margin:

                                      Three Months Ended September 30,      

Nine month period ended September 30,

                                        2022                   2021                  2022                   2021
(in thousands)
Loss from operations               $       (38,839 )     $        (124,668 )   $       (164,162 )     $       (172,594 )
Adjusted for:
Depreciation and amortization               17,884                  13,777               50,311                 38,779
General and administrative
expenses (1)                                81,248                 162,943              288,176                281,073
Center Margin                      $        60,293       $          52,052     $        174,325       $        147,258




(1)

Represents senior executive salaries, wages and benefits, finance, human resources, marketing, billing and accreditation support, and technology infrastructure, as well as stock- and share-based compensation. units for all employees.

Adjusted EBITDA

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

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

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

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

Adjusted EBITDA does not include dilution resulting from stock-based compensation or any cash outflows included in stock-based compensation, including our repurchases of outstanding common stock; and

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

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A reconciliation of net loss to Adjusted EBITDA is presented below for the three
and nine months ended September 30, 2022 and 2021. 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.

                                    Three Months Ended September 30,        

Nine month period ended September 30,

                                         2022                2021               2022                   2021
(in thousands)
Net loss                            $       (37,853 )     $  (120,452 )   $       (168,908 )     $       (199,167 )
Adjusted for:
Interest expense                              4,189             3,503               14,763                 35,309
Depreciation and amortization                17,884            13,777               50,311                 38,779
Income tax benefit                           (4,353 )          (8,751 )            (10,106 )              (15,300 )
(Gain) loss on remeasurement of
contingent
  consideration                              (1,176 )             906                 (562 )                1,463
Stock and unit-based compensation
expense                                      34,870           120,689              152,235                150,809
Management fees (1)                               -                 -                    -                  1,445
Loss on disposal of assets                      144                 -                  144                      -
Transaction costs (2)                           210               126                  507                  3,656
Offering related costs (3)                        -                 -                    -                  8,747
Endowment to the LifeStance
Health Foundation                                 -                 -                    -                 10,000
CEO transition costs                            494                 -                  494                      -
Litigation costs (4)                            104                 -                  104                      -
Other expenses (5)                              866               896                3,511                  2,072
Adjusted EBITDA                     $        15,379       $    10,694     $         42,493       $         37,813


(1)
Represents management fees paid to certain of our executive officers and
affiliates of our Principal Stockholders pursuant to the management services
agreement entered into in connection with the TPG Acquisition. The management
services agreement terminated in connection with the IPO.
(2)
Primarily includes capital markets advisory, consulting, accounting and legal
expenses related to our acquisitions.
(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 fees 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 unaudited consolidated statements of
operations and comprehensive loss. Former owner fees is a component of center
costs, excluding depreciation and amortization included in our unaudited
consolidated statements of operations and comprehensive loss. These costs are
summarized for each period in the table below:

                                       Three Months Ended September 30,     

Nine month period ended September 30,

                                        2022                      2021                 2022                     2021
(in thousands)
Acquired center integration (1)    $           641           $           755     $          1,854         $          1,670
Former owner fees (2)                           49                       106                  336                      262
Other (3)                                      176                        35                1,321                      140
Total                              $           866           $           896     $          3,511         $          2,072


(1)
Represents costs incurred pre- and post-center acquisition to integrate
operations, including expenses related to conversion of compensation model,
legacy system costs and data migration, consulting and legal services, and
overtime and temporary labor costs.
(2)
Represents short-term agreements, generally with terms of three to six months,
with former owners of acquired centers, to provide transition and integration
services.
(3)
Primarily includes severance expense unrelated to integration services.

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Operating results

The following table provides a summary of our financial results for the three and nine months ended September 30, 2022 and 2021:

                                      Three Months Ended September 30,      

Nine month period ended September 30,

                                        2022                   2021                  2022                   2021
(in thousands)
TOTAL REVENUE                      $       217,560       $         173,835     $        630,182       $        477,516
OPERATING EXPENSES
Center costs, excluding
depreciation and
  amortization shown separately
below                                      157,267                 121,783              455,857                330,258
General and administrative
expenses                                    81,248                 162,943              288,176                281,073
Depreciation and amortization               17,884                  13,777               50,311                 38,779
Total operating expenses           $       256,399       $         298,503     $        794,344       $        650,110
LOSS FROM OPERATIONS               $       (38,839 )     $        (124,668 )   $       (164,162 )     $       (172,594 )
OTHER INCOME (EXPENSE)
Gain (loss) on remeasurement of
contingent
  consideration                              1,176                    (906 )                562                 (1,463 )
Transaction costs                             (210 )                  (126 )               (507 )               (3,656 )
Interest expense                            (4,189 )                (3,503 )            (14,763 )              (35,309 )
Other expense                                 (144 )                     -                 (144 )               (1,445 )
Total other expense                $        (3,367 )     $          (4,535 )   $        (14,852 )     $        (41,873 )
LOSS BEFORE INCOME TAXES                   (42,206 )              (129,203 )           (179,014 )             (214,467 )
INCOME TAX BENEFIT                           4,353                   8,751               10,106                 15,300
NET LOSS                           $       (37,853 )     $        (120,452 )   $       (168,908 )     $       (199,167 )


Total Revenue

Total revenue increased $43.8 million, or 25%, to $217.6 million for the three
months ended September 30, 2022 from $173.8 million for the three months ended
September 30, 2021. This was primarily due to an increase composed of $42.5
million of patient service revenue due to the increase in patient visits and
$1.3 million of nonpatient revenue.

Total revenue increased $152.7 million, or 32%, to $630.2 million for the nine
months ended September 30, 2022 from $477.5 million for the nine months ended
September 30, 2021. This was primarily due to an increase composed of $149.0
million of patient service revenue due to the increase in patient visits and
$3.7 million of nonpatient revenue.

Functionnary costs

Center costs, excluding amortization and depreciation

Center costs, excluding depreciation and amortization increased $35.5 million,
or 29%, to $157.3 million for the three months ended September 30, 2022 from
$121.8 million for the three months ended September 30, 2021. This was primarily
due to a $30.1 million increase in center-based compensation due to the increase
in clinicians and visits and a $5.4 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 centers.

Center costs, excluding depreciation and amortization increased $125.6 million,
or 38%, to $455.9 million for the nine months ended September 30, 2022 from
$330.3 million for the nine months ended September 30, 2021. This was primarily
due to a $105.2 million increase in center-based compensation due to the
increase in clinicians and visits and a $20.4 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 centers.

General and administrative expenses

General and administrative expenses decreased $81.7 million, or 50%, to $81.2
million for the three months ended September 30, 2022 from $162.9 million for
the three months ended September 30, 2021. This was primarily due to a decrease
of $83.7 million in salaries, wages and employee benefits, which included an
decrease of $85.8 million in stock and unit-based compensation expense primarily
relating to RSAs and the RSUs granted at the time of IPO and slightly offset by
increases of $1.1 million in occupancy costs and $0.9 million in other operating
expenses, including professional services and insurance.

General and administrative expenses increased $7.1 million, or 3%, to $288.2
million for the nine months ended September 30, 2022 from $281.1 million for the
nine months ended September 30, 2021. This was primarily due to increases of
$20.5 million in salaries, wages and employee benefits, which included an
increase of $1.4 million in stock and unit-based compensation expense and

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$4.6 million occupancy costs and slightly offset by a decrease in $18.0 million in other operating expenses, including professional services and insurance related to our IPO and contribution to the LifeStance Health Foundation.

Depreciation and amortization

Depreciation and amortization expense increased $4.1 million to $17.9 million
for the three months ended September 30, 2022 from $13.8 million for the three
months ended September 30, 2021. This was primarily due to the amortization of
intangibles and depreciation during the periods.

Depreciation and amortization expense increased $11.5 million to $50.3 million
for the nine months ended September 30, 2022 from $38.8 million for the nine
months ended September 30, 2021. This was primarily due to the amortization of
intangibles and depreciation during the periods.

Other expenses

Gain (loss) on remeasurement of contingent consideration

Gain (loss) on remeasurement of contingent consideration increased $2.1 million
to a $1.2 million gain for the three months ended September 30, 2022 from a $0.9
million loss for the three months ended September 30, 2021. This was primarily
due to changes in the weighted probability of achieving the performance and
operational targets.

Gain (loss) on remeasurement of contingent consideration increased $2.1 million
to a $0.6 million gain for the nine months ended September 30, 2022 from a $1.5
million loss for the nine months ended September 30, 2021. This was primarily
due to changes in the weighted probability of achieving the performance and
operational targets.

Transaction costs

Transaction costs increased $0.1 million to $0.2 million for the three months
ended September 30, 2022 from $0.1 million for the three months ended September
30, 2021. Transaction costs increased primarily due to higher fees related to
corporate transactions.

Transaction costs decreased $3.2 million to $0.5 million for the nine months
ended September 30, 2022 from $3.7 million for the nine months ended September
30, 2021. Transaction costs decreased primarily due to lower fees related to
corporate transactions.

Interest Expense

Interest expense increased $0.7 million to $4.2 million for the three months
ended September 30, 2022 from $3.5 million for the three months ended September
30, 2021. This increase was primarily due to higher borrowings outstanding
during the period.

Interest expense decreased $20.5 million to $14.8 million for the nine months
ended September 30, 2022 from $35.3 million for the nine months ended September
30, 2021. This decrease was primarily due to lower borrowings outstanding during
the period as a result of our voluntary prepayment of outstanding borrowings
with proceeds from our IPO, which occurred in the second quarter of 2021.

Other income (expenses)

The other charges went to $0.1 million for the three months ended September 30, 2022 of $0 for the three months ended September 30, 2021.

Other expense decreased to $0.1 million for the nine months ended September 30,
2022 from $1.4 million for the nine months ended September 30, 2021 primarily
due to the termination of the management services as a result of our IPO during
the second quarter of 2021.

Tax benefit

Income tax benefit decreased $4.4 million to $4.4 million for the three months
ended September 30, 2022 from a $8.8 million benefit for the three months ended
September 30, 2021 primarily due to taxable loss and non-deductible equity
awards for the three months ended September 30, 2022.

Income tax benefit decreased $5.2 million to $10.1 million for the nine months
ended September 30, 2022 from $15.3 million for the nine months ended September
30, 2021 primarily due to taxable loss and non-deductible equity awards for the
nine months ended September 30, 2022.

Cash 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 2022

                                       29
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Credit agreement. We had cash and cash equivalents of $90.3 million and $148.0 million of the September 30, 2022 and December 31, 2021.

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

Our future obligations primarily consist of our debt and lease obligations. We
expect our cash generation from operations and future ability to refinance or
secure additional financing facilities to be sufficient to repay our outstanding
debt obligations and lease payment obligations. As of December 31, 2021 and
September 30, 2022, there was an aggregate principal amount of $161.2 million
outstanding under the May 2020 Credit Agreement and $220.5 million outstanding
under the 2022 Credit Agreement, respectively. As of September 30, 2022, our
non-cancellable future minimum operating third-party lease payments totaled
$299.0 million, and our non-cancellable future minimum operating related-party
lease payments totaled $6.1 million.

Debt

May 2020 credit agreement

On May 14, 2020 and in connection with the TPG Acquisition, LifeStance Health
Holdings, Inc., one of our subsidiaries, entered into the May 2020 Credit
Agreement. The May 2020 Credit Agreement provides for senior secured credit
facilities in the form of (i) $37.5 million original and delayed draw principal
amount of Closing Date Term B-1 Loans and $222.5 million original and delayed
draw principal amount of Closing Date Term B-2 Loans, and (ii) $20.0 million of
Revolving Commitments. On November 4, 2020, we entered into the First Amendment
to the May 2020 Credit Agreement which, among other things, provided for
incremental credit facilities in the form of $16.6 million original principal
amount of First Amendment Term B-1 Loans and $98.4 million original principal
amount of First Amendment Term B-2 Loans. On February 1, 2021, we entered into
the Second Amendment to the Credit Agreement, which provided for incremental
delayed draw term loans in the aggregate principal amount of $50.0 million. 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.

Credit agreement 2022

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

                                       30
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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 September 30, 2022, we
were in compliance with all financial covenants under the 2022 Credit Agreement.

Cash flow

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

                                                     Nine Months Ended September 30,
                                                       2022                   2021
(in thousands)
Net cash provided by (used in) operating
activities                                       $         16,871       $        (21,215 )
Net cash used in investing activities                    (109,165 )             (114,514 )
Net cash provided by financing activities                  34,601           

329,023

Net (decrease) increase in cash and cash
equivalents                                      $        (57,693 )     $   

193 294

Cash and cash equivalents, beginning of period            148,029           

18,829

Cash and cash equivalents, end of period $90,336

212 123

Cash flows generated by (used in) operating activities

During the nine months ended September 30, 2022, operating activities provided
$16.9 million of cash, primarily impacted by our $168.9 million net loss and
$206.9 million in non-cash charges. This was partially offset by changes in our
operating assets and liabilities of $21.1 million. During the nine months ended
September 30, 2021, operating activities used $21.2 million of cash, primarily
impacted by our $199.2 million net loss and $207.2 million in non-cash charges.
This was partially offset by changes in our operating assets and liabilities of
$29.2 million.

Cash flows used in investing activities

During the nine months ended September 30, 2022, investing activities used
$109.2 million of cash, primarily resulting from our business acquisitions
totaling $40.3 million and purchases of property and equipment of $68.9 million.
During the nine months ended September 30, 2021, investing activities used
$114.5 million of cash, primarily resulting from our business acquisitions of
$58.7 million and purchases of property and equipment of $55.8 million.

Cash flows generated by financing activities

During the nine months ended September 30, 2022, financing activities provided
$34.6 million of cash, resulting primarily from net borrowings of $237.5 million
under the 2022 Credit Agreement, partially offset by payments of loan
obligations of $181.2 million, a prepayment for the debt paydown under the May
2020 Credit Agreement of $1.6 million, payments of debt issue costs of $7.3
million and payments of contingent consideration of $12.3 million. During the
nine months ended September 30, 2021, financing activities provided $329.0
million of cash, resulting primarily from our IPO of net proceeds of $548.9
million, borrowings of $98.8 million under the May 2020 Credit Agreement,
partially offset by payments of loan obligations of $311.1 million, payments of
debt issue costs of $2.4 million and payments of contingent consideration of
$6.3 million.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with
GAAP. The consolidated financial statements included elsewhere in this Quarterly
Report include the results of (i) LifeStance TopCo, L.P., its wholly-owned
subsidiaries and variable interest entities consolidated by LifeStance TopCo,
L.P. in which LifeStance TopCo, L.P. has an interest and is the primary
beneficiary for the period prior to the completion of the IPO and (ii)
LifeStance Health Group, Inc., its wholly-owned subsidiaries and variable
interest entities consolidated by LifeStance Health Group, Inc. in which
LifeStance Health Group, Inc. has an interest and is the primary beneficiary for
the period ended September 30, 2022. Preparation of the consolidated financial
statements requires our management to make judgments, estimates and assumptions
that impact the reported amount of total revenue and expenses, assets and
liabilities and the disclosure of contingent assets and liabilities. We consider
an accounting estimate to be critical when (1) the estimate made in accordance
with GAAP is complex in nature or involves a significant level of estimation
uncertainty and (2) the use of different judgments, estimates and assumptions
have had or are reasonably likely to have a material impact on the financial
condition or results of operations in our consolidated financial statements.
Actual results could differ materially from those estimates. To the extent that
there are material differences between these estimates and our actual results,
our future financial statements will be affected. For a description of our
policies regarding our critical accounting estimates, see "Critical Accounting
Estimates" in our Annual Report on Form 10-K for the year ended December 31,
2021. There have been no significant changes in our critical accounting
estimates or methodologies to our consolidated financial statements.

Recently Adopted and Issued Accounting Pronouncements

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

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Emerging Growth Company Status

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

We will remain an emerging growth company until the earlier to occur of: (i) the
last day of the fiscal year (a) following the fifth anniversary of the
completion of the IPO, (b) in which we have total annual gross revenue of $1.235
billion or more, or (c) in which we are deemed to be a large accelerated filer,
which means the market value of our common stock that is held by non-affiliates
exceeds $700.0 million as of the prior June 30th; and (ii) the date on which we
have issued more than $1.0 billion in non-convertible debt during the prior
three-year period.

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