Good day. And welcome to the Third Quarter 2019 Earnings Conference Call for Progyny. All participants will be in a listen only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr.

James Hart, Vice President of Investor Relations. Please go ahead..

Thank you, John and good afternoon everyone. Welcome to our earnings conference call for the third quarter of 2019. With me today are David Schlanger CEO of Progyny and Pete Anevski, President CFO and COO. We will begin with some prepared remarks and then open up the call for your questions.

Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about revenue, net income, cash flow, our ability to sustain profitability, our business strategy, our ability to acquire new clients and maintain existing clients, market opportunity to consolidate business performance, our industry outlook, financial outlook, plans and objectives for future operations and other non-historical statements as further described in this call and in our press release issued this afternoon.

These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Progyny's growth, market opportunities and general economic and business conditions.

We have based these forward-looking different statements largely on our current expectations, and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations.

Although, we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements, to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements.

Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued this afternoon.

During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA, net income as adjusted, adjusted EPS and net earnings per share as adjusted. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progyny.com.

I would now like to turn the call over to David..

Thank you, Jamie. And thank you everyone for joining us today. It's a pleasure to be here today for our first earnings call as a public company, following our IPO in October of this year. I'm pleased to report that Progyny delivered strong results for the third quarter of 2019.

In a few minutes, Pete will walk you through the third quarter numbers in greater detail. But here are just a few of the highlights. Revenue increased 120% from the prior year period to $61.2 million. We achieved a 20.1% gross margin, which was up 190 basis points from the prior year period.

Adjusted EBITDA increased to $5.5 million with an adjusted EBITDA margin on incremental revenue of 14.5%. We're realizing economies of scale across our business, and that's enabled us to achieve a more than 8 times increase in adjusted EBITDA from the prior year period.

We continue to generate positive operating cash flow growth, both in the three and nine months ended September 30, 2019. Assisted Reproductive Technology or ART cycles that our members utilized in the third quarter this year more than doubled from the prior year period.

And as our 2019 selling season comes to a close, we are pleased to have received commitments from 57 new clients. This is a record number of new client additions for us, and represents approximately 750,000 new covered lives. As I mentioned, we configure IPO on October 29th after the end of the quarter.

We issued 6.7 million new shares, raising approximately $77 million in proceeds net of fees and expenses. We're happy to have created a public market for us stock during the difficult market from new issues. Most importantly, the offering has increased awareness of both our brand, as well as the issues surrounding infertility.

While we have the opportunity during the road show to meet some of you on today's call for the benefit of those joining today who are newer to Progyny, we wanted to take a few minutes to provide a brief overview of our company.

Progyny helps people have children by offering to self insured employers, a fully carved out fertility and family building benefit solution for their employees and their partners, who we refer to as our members.

Our mission is to make any member stream of parenthood come true through a healthy, timely and supportive fertility and family building journey. Our success has been driven by our ability to generate superior clinical outcomes compared to national averages.

Our members are getting pregnant faster and more often or having healthy pregnancies with fewer miscarriages and fewer higher high risk multiple births.

Pete and I recruited to Progyny in late 2016, because the board and principal investors recognized that, although, Progyny was in its early stages and in need of experienced management, there was an opportunity to successfully disrupt a large market.

After being at Progyny a very short time, we discovered that something even more exciting was possible. During our careers, we've seen the same themes unfold in healthcare.

Patients who are unsupported and left to figure out complex medical conditions on their own and who then make poor treatment choices, and have to face the consequences of sub-optimal treatment outcomes, employers have spent an enormous amount of money on healthcare without having a clear picture of what they're getting in return, while seeing their costs escalating rapidly and physicians, in an adversarial relationship with health plans and being restricted by those plans from practicing medicine in the way they believe is best for their patients.

What was exciting to us was that Progyny was in a position to demonstrate that a great patient experience, superior clinical outcome and more efficient use of employer healthcare dollars are not mutually exclusive, that all those objectives can be achieved at the same time.

Before I cover what we do uniquely at Progyny that makes this possible, I'd like to provide some background information on our market and business. I mentioned before that we operate in a very large and underserved market.

Our market for fertility benefit solutions is large, because infertility is a common health condition, affecting one in eight couples, making more prevalent than diabetes or asthma. And both the incidents of infertility and the demand for treatment is growing in each case driven by societal factors.

First, many couples are waiting longer than ever to have children, even though fertility declines with age. And there's a growing acceptance of non-traditional test for parenthood, such as when LGBTQ couples and single parents choose to start their families.

To translate this into dollars, if you look at just the number of in-vitro fertilization cycles performed annually, this was an approximately $6.7 billion market in 2017 and this market has been growing at over 10% annually for several years before that.

Despite these large numbers, we believe the potential market for IVF cycles is at least twice as large, because approximately half the people who need treatments aren't getting it because they can't afford it.

In addition to the number of IVF cycles, we also look at our addressable market based on the potential number of employer customers to our fertility benefit solution. In the United States, there are 8,000 large self-insured employers, representing 69 million covered lives.

As of September 30th of this year, we had 84 clients, representing 1.4 million covered lives.

So our penetration rate is only about 1% to 2%, which puts us in the very early stages of penetrating our core market of large self-insured employers Today, we work with many of the world's leading companies, and those companies represent a broad cross section of over 20 different industries, including media, manufacturing, food and beverage, pharmaceutical, technology, consumer packaged goods, energy, retail and financial services.

What this demonstrates is that fertility is truly a universal health issue. And that regardless of the industry or the demographics of the workforce, covering fertility is relevant to every employer in every industry.

That's because fertility coverage is increasingly being recognized by employers as a required element of a competitive health benefits plan, and employers want to demonstrate that they are responsive to the needs of their workforce.

Because of the high prevalence of infertility and the cost of treatment, employees are asking for fertility coverage and the availability of that coverage is frequently cited by employees as a primary reason they want to work for or stay with the company.

Beyond the positive impact on their workforce and recruiting and retention perspective, Progyny provides with employer clients a cost effective fertility benefit solution by reducing both fertility treatment costs and the high risk maternity and neonatal intensive care costs, resulting from IVF related multiple burst.

The foundation of our value proposition stems from the fact that we are able to demonstrate to our employer clients that we deliver superior clinical outcomes when compared to national averages. Our pregnancy rate is higher and our miscarriage rate is lower.

As a result, we have a 26% higher live birth rate than national averages reported by all fertility clinics with the CDC. With a higher live birth rate, employers spend less money overall on fertility treatments, because their employees are getting pregnant with fewer cycles.

As part of our program, we educate our members on best clinical practices and empower them with a benefit design that allows them to pursue a course of treatment most likely to result in the healthy singleton birth.

As a result, we have a much higher single embryo transfer rate, which helps drive a 78% reduction in the rate of multiple births as compared to the national averages. One of the most common complications associated with multiple is preterm birth.

With fewer multiple births and employers spend significantly less on the high medical costs of preterm birth, such as C-section, NICU expenses and the ongoing care associated with chronic health condition that low birth weight babies often suffer from.

A logical question that some investors have asked us is how we are able to drive these superior clinical results, and whether there is one key difference that explains what we do better. The answer to that is really -- the answer is that it's really the combination of three essential elements that are unique to our platform.

First, unlike the traditional health plan model, we have a plan design that is focused on generating the best outcomes rather than limiting the utilization of services. We provide access to the latest technologies that are correlated with better outcomes and always provide coverage for a full treatment event.

This lets doctors provide a tailored course of treatment for each patient, because all of the necessary tools are available and individual treatment decisions are based solely on generating the best outcomes rather than making compromises in care due to cost and affordability issues.

Second, we provide an unprecedented level of support to each member with a dedicated patient care advocate who gives the member extensive guidance and education. This is an inbound and outbound model, providing support at critical points before, during and after treatment.

On average for patient care advocates interact with each member 15 times during the course of treatment. Our outcomes, particularly our rate a single embryo transfer, demonstrate that an educated and supported patient makes better medical decisions. And third, we've curated a network of the top fertility specialists in the country.

Approximately 30% of the doctors in our network don't broadly participate in conventional carrier networks, because of the historically difficult relationships that they've had with the carriers.

We believe that they choose to work with Progyny, because our plan design allows them to practice the best medicine and may know that a Progyny patient is a supported patient inclined to make the best decisions.

But it's not just who is in our network that’s unique, it's that we actively work hand-in-hand with our doctors to ensure that our members are benefiting from the utilization of best practices and enjoying the best outcomes. We collect real-time outcomes and treatment data directly from our doctors on all of our members that undergo treatment.

This data allows us and our network physicians to quickly identify issues, adjust and make continuous improvements. In summary, at Progyny, we are unique and that we are successfully creating value for all of our key constituents. We are supporting patients to make informed and better treatment choices, leading to superior clinical outcomes.

Employers are benefiting from the most cost-effective fertility solution, and are receiving detailed reporting so they can understand the drivers behind those superior results. And our physicians have the tools and support they need to practice the best medicine for the unique needs of each of their patients.

Now I'll turn the call over to Pete to walk you through the financials in greater detail.

Pete?.

Thanks, David. I will start today by taking you through the key drivers of our third quarter results, and we'll then give you insight into our expectations for the fourth quarter and full year. Starting with the highlights of our third quarter results.

We generated $61.2 million in revenue, that’s an increase of 120% as compared to the $27.8 million in the third quarter last year. Looking at the drivers of our year-over-year increase in revenue. Fertility benefits increased 90% from $26.4 million in the third quarter last year to $50 million in current year period.

The growth was driven by the higher number of clients and covered lives. Pharmacy benefits revenue increased from $1.4 million in the third quarter last year to $11.2 million in the current year period. As a reminder, Progyny Rx wasn’t available during most of the 2017 selling season, and went live only with a select number of clients in 2018.

As a result, our revenue this quarter benefited from having Rx available for the entire 2018 selling season, and was therefore sold into significantly more accounts, both known existed. As of the end of the third quarter, we had 84 clients, representing 1.4 million members.

This compares to 80 clients as of the end of the second quarter this year and 33 clients as of the end of the third quarter last year. Turning to our utilization rates. There were 3,753 ART cycles performed in the quarter, which is more than double the number of cycles performed in the same quarter a year ago.

We report ART cycles consistent with the way the CDC does, and it reflect idea treatments, frozen embryo transfers and egg freezing. Our utilization rate of 0.52% for all members in the third quarter was comparable to a year ago.

While this is an important measure of overall engagement, because it includes our male members and catches all services, we believe that the utilization rate for female members is most relevant, because our revenue is driven principally from our female utilizes. Our utilization rate for female members was 0.47% this quarter compared 0.45% a year ago.

It's important to note that utilization rates will vary from quarter-to-quarter due to a number of factors, some of which are the timing of when new clients go live, the time of the year and demographic mix of our clients. Turning now to our margins.

Gross profit of $12.3 million for the third quarter increased 144% from the $5 million reported the same quarter a year ago. Our gross margin is 20.1% for third quarter this year, reflected an increase of 190 basis points from the third quarter of last year due primarily to increased operating efficiencies. Looking at our operating expenses.

Sales and marketing was 5.2% of revenue in the third quarter of 2019, an improvement of about 70 basis points compared to the same quarter last year. General and administrative costs were 9.9% of revenues, an improvement of 440 basis points from the prior year period.

The improvement in all these measures reflect greater economies of scale in sales and marketing due to our nearly 100% client retention rate; customer acquisition costs are primarily incurred in year-one with a new client; and in general and administrative costs, where we see leverage as we build out our back office and support functions and apply these efficiencies over a larger base of revenue.

With these improvements in margins, our adjusted EBITDA increased substantially from $0.7 million in the prior year period to $5.5 million in third quarter this year. Adjusted EBITDA margin on incremental revenue was 14.5% for the third quarter this year.

Net loss attributable to common stockholders was $8.2 million or $1.10 per share in the third quarter compared to a loss of $1.1 million or $0.20 per shares in the prior year period.

The increased loss was attributable to an $11.2 million non-cash charge in the third quarter associated with the increased valuation of the outstanding convertible preferred stock warrants, which are required to be remeasured each period.

With the closing of the IPO and the transition from a private company to a public company valuation, the valuation adjustment and remeasurement was finalized. In conjunction with the IPO, these convertible preferred stock warrants were converted into warrants repurchase common stock and are no longer subject to remeasurement since their conversion.

Net income as adjusted for the third quarter of 2019, which adjust for the impact of the conversion of preferred stock as well as the outstanding options and warrants was $3 million or $0.03 per share on the basis of 87.2 million weighted average diluted shares outstanding. Turning now to our balance sheet and cash flow.

Cash flow provided by operations was a record $5.9 million in the third quarter as compared to cash used by operations of $0.5 million in the prior year period. We are cash flow from operations positive for the first nine months of 2019, reflecting an improvement of $5.8 million compared to last year.

With the strength of our cash flow, we closed the third quarter this year with $7.7 million of cash on the balance sheet and no debt. As a reminder, our IPO was completed on October 29th after the close of the third quarter, so you will see those proceeds reported on the fourth quarter -- on our fourth quarter balance sheet.

Turning now to our expectations for the fourth quarter and the full year. In the fourth quarter, we're projecting revenue to be between $65 million and $66.5 million, reflecting growth of 123% to 128%. We expect fourth quarter adjusted EBITDA to be between $3.8 million to $4.1 million.

Net loss from continuing operations is projected to be $4.4 million to $4.7 million, reflecting $5.8 million non-cash charge associated with the final valuation and re-measurement of the convertible preferred stock warrants.

Net income as adjusted for the fourth quarter of 2019, which again adjust for the impact of the conversions of preferred stock, as well as the outstanding options and warrants, is projected to be $1.1 million to $1.4 million, or possibly $0.01 per share on the basis of 98 million assumed weighted average fully diluted shares outstanding.

For the full year 2019, we expect revenue to be between $229.6 million and $231.1 million, reflecting growth of 118% and 119%. We expect full-year 2019 adjusted EBITDA to be between $18.3 million to $18.6 million.

We expect full year 2019 net loss from continuing operations to be $8.6 million to $8.9 million, which includes $18.2 million of non-cash charges associated with the valuation and remeasurement of the convertible preferred stock warrants, which is finalized with the IPO.

Net income, as adjusted for the full year 2019, which adjust for the impact of the conversion of preferred stock, as well as the outstanding options and warrants, is projected to be $9.3 million to $9.6 million or $0.10 to $0.11 per share on the basis of 89.2 million assumed weighted average fully diluted shares outstanding.

Before I turn the call back over to David, I'm going to provide an update on our selling season. The 2019 selling season is largely over, and we are now in the implementation phase with the new clients. During this process, clients finalize both their contracts and benefits selections. We also get a clear sense for their number of covered labs.

Although infrequent, clients could give us a verbal commitment and then push out their implementation date to later in the year, but could fail to execute their contract. In addition, the early weeks of the new calendar year are extremely important in helping us accurately estimate the utilization we would expect to see with our new clients.

Quarterly, we will be in a position to issue financial guidance for 2020 on our next quarter's earnings call, which will be on the basis of finalized contracts and benefit decisions, and once we have started to see utilization patterns of our clients after the start of the year.

What we do want to provide you with insight today for the commitments we received in this selling season.

During the 2019 selling season, we're pleased to have received commitments from 57 new clients, representing approximately 750,000 covered lives, which is consistent with the growth expectations that we set for ourselves at the beginning of the year.

This is a record number of new clients for us and is now our fourth straight year of adding a higher number of new clients than we did in the previous year. Our success with Progyny Rx has also continued. A year ago, 68% of new clients took the benefit. This year in the 2019 selling season, approximately 75% of the new clients did as well.

The vast majority of the 57 new clients are expected to go live on January 01, 2020. Some clients want to begin their programs sooner and are already reflected in the 84 clients we've reported for the third quarter of this year and a handful will start through Q1 and Q2 of next year.

When we report our fourth quarter results, we'll be in a position to provide you with final client counts and the related covered lives. We will use guidance for the first quarter and full year 2020 reflecting those links. With that, I'll turn the call back over to David..

Thanks, Pete. Earlier, I highlighted a few of the reasons that we've been able to achieve and sustain our high rates of growth. To that earlier list, I should add Progyny's unique culture.

This is a mission driven organization where people across all levels and all functions want to help make a difference in the lives of our members and help them achieve their dreams of building a family.

Beyond our collaborative culture and our focus on employee training and career growth, that's an important reason why we enjoy such high levels of employee satisfaction and low levels of voluntary attrition.

This year, we've continued to made substantial investments in our team, particularly in key leadership positions, to highlight two of our recent hires. First, Mark Livingston joined this summer as Executive Vice President of Finance. Mark has a successful track record of transitioning entrepreneurial entities into high growth discipline businesses.

He was previously the SVP finance and CFO International at Scripps, and has held senior finance roles at Emerson Reid, Emdeon and Hess. Second, Lisa Greenbaum also joined this summer as our Chief Client Officer, responsible for revenue generation and business development.

Lisa has over 25 years of experience in healthcare with senior roles at Health Stream, Merck, Procter and Gamble, and most recently WebMD, where she was Group General Manager of Professional Services and also held multiple executive level roles in sales.

Although, Lisa joined midway through our 2019 selling season, she has made an immediate impact, bringing an energy and focus to our new sales and account management process. We know she will take what is already working with our go-to-market approach and bring it to the next level.

As I've been discussing, our workplace culture is very important to us. For the second year in a row, we were named to modern Healthcare's list of the Best Places to Work in Healthcare. This award recognizes outstanding employers in the healthcare industry nationwide. We recently received a few additional recognitions.

We were named to Crain's New York Fast 50 for the second straight year and in the spring of 2019, to the CNBC Disruptor 50 list for the third year in a row. We are proud to have successfully graduated from the disruptor list because of our recent IPO.

Another positive consequence of our growth is that we need more space for our growing number of employees. We'll be moving into a new headquarters in New York in the first quarter of 2020 and are very much looking forward to our new corporate home. We'll now open up the call for your questions.

If you aren't able to ask us a question today, we are appearing at the Piper Jaffray Healthcare Conference tomorrow and are also participating in the Citi Healthcare Conference next Wednesday. We hope to see you there.

With that operator can you please provide the instructions to ask the questions?.

[Operator Instructions] Our first question today will come from Anne Samuel with J.P. Morgan. Please go ahead..

Hi guys, congrats on the quarter.

I was hoping maybe you could touch on any highlights on the recent selling season? Are you seeing any new types of clients or industries interested in the product?.

The nice thing is that we continue to sell to a diversified group of clients, representing a diversified set of industries. The macro trends all remain really positive.

What we are starting to see is that, when we successfully penetrate a particular industry because the employers in the industry are competing for the same talent, that we tend to start winning other new clients in that industry. So we're seeing some network effect, if you will, within industries. But again, all the trends remain very positive..

That’s great.

And then I was hoping maybe if you could speak a little bit of about what you saw in terms of organic same store growth within your existing clients within the quarter?.

That’s on a number we break out separately from our overall growth number. I think we have disclosed that, the majority of the growth you see from a revenue perspective is driven by new client adds, but there is definitely same store growth as a contributor.

Same-store growth is made up of two factors, it's both the opportunity to upsell some of our customers and also many of our customers have been hiring and adding employee headcount. But again, that’s on a number we’ve broken out. .

Our next question will come from Sarah James with Piper Jaffray. .

So strong results all the way down the line and 2020 sales better than we expected. You guys have recently been out there in the market and I get that it sort of fluid right now, but can you talk a little bit more broadly about sentiment.

How you are finding the appetite for carving in Progyny Rx this year?.

Our clients that have taken the entire benefit including Progyny Rx are certainly enjoying the benefits of it. And there’s a superior member experience and we're actually saving them money.

Approximately this year we disclosed, 75% of our new customers took the integrated program with RX included, which is up slightly from the 68% last -- on the prior year. So again really strong success selling it in.

You need to keep in mind that many of our clients selling the pharmacy benefits involves a separate decision maker, so the process is a bit more complex and often times clients want to get the medical benefit up and running and deal with that other mechanical process within the organizations after they get the medical benefit up and running.

And so again it provides us a nice up sell opportunity..

Great and can you talk a little bit about the pipeline you have for growing sales reps and PCAs.

You guys have a nice step function up for next year, so how do you prepare for that from an operating model prospective and then how do you get your pipeline set for the type of growth that you are going to see for the next couple of years?.

I will start first with the PCAs. The PCAs that we need relative to the staffing models that we have based on the new clients and covered lives that we sold are in place already, being trained and will be ready for one-one. And everything that we do contemplates the growth that we anticipated. Same thing with our implementation teams, et cetera.

As it relates to the sales force. The sales force already has new seasoned sales reps added, as well as a pipeline of sales reps that we are interviewing, those are generally always added over the next, I'll call it 60, 90 days. So that they're in place for the selling season, which generally starts for us in earnest in February next year..

Our next question will come from Michael Cherny with Bank of America Merrill Lynch..

I wanted to head back a little to Anne’s initial question about the customer adds. You talked about alot of the same industries continue to show support. As you think about your new rule as a public company, and maybe this will be a better question for a couple of years down the road.

How do you think about the mix up from a size perspective? Andin the past, since you've had a couple of customers that really have a meaningful level of average new membership client.

How do you think about that range of potentially jumbo type wins among the employers that you're targeting?.

So we're certainly targeting larger employers, the larger employers, as you recognize cover lots of different sizes. So and kind of we have structured our sales force to be efficient in going after employers of different sizes, based upon kind of the seniority and seasoning of the individual sellers.

So, and again, I think you can see it within our S1, you can see that we are well represented across the various size cohorts. We continue to expect to be able to do that. So, we'll continue to sell across all of those employer segments and sizes. And again, continue to look to expand the industries and work with.

And as we’ve spoken about previously, we're not just focused on corporate employers, as we think about the opportunities, there's other types of employers that self insured governmental agencies and organizations. For instance, we won our first school district, Metropolitan School District.

I think that's a good example of a new type of employer that we are going after..

And then question for you, Peter. Having completed the IPO, obviously that gives you some capital availability. As you think going forward, especially since you're already generating positive free cash positive EBITDA.

How do you think about the dry firepower you have on the balance sheet and how do you think with the best opportunities to deploy that going forward to drive growth?.

The first answer I'll give you, there’s nothing specific that we've identified at the moment relative to what we're going to do with that. But I think there's a lot of opportunities, both vertically within the industry that we can look at.

We've given examples in the past of things like potentially owning a special to pharmacy, essentially doing other services within the facility industry, in addition to what we're doing today, on the medical side, et cetera. And the second piece is, as you think about tangential opportunities.

We utilize those funds as well as the funds that we generate from the business today, just start exploring new opportunities, outside of facility, not only within facility. We will certainly keep everybody up to date as we progress exploring those ideas in the upcoming year..

Our next question will come from Steve Tanal with Goldman Sachs. Please go ahead..

I just wanted to sort of pick into the client adds and understand sort of how that may be moving the numbers. So I guess the pull forward into Q3, four more clients than we anticipated at quarter end.

Just trying to understand when those clients came on and how they've impacted revenue utilization or any other line items, if you could comment on that?.

I don't have a breakout of the exact dollar amount. They came online mostly at the end of the quarter. They weren't huge relative to overall lives, but they did come on earlier than their normal plan year.

So it wasn't hugely significant relative to incremental revenue from those clients, vis-à-vis the overall installed base on the 80 clients that we ended the quarter with. .

So no impact on the utilization rate really that’s worth calling out or anything?.

No, that's why, because they were not huge clients -- even if their utilization rate varies from the overall book of business, which by the way does vary client-by-client, it wouldn't have an impact on the overall utilization rate because the overall number of covered lives added was relatively small..

And thinking about the remaining 53 -- I guess what number does it start in 2Q? We sort of modelled, mostly one, one starts and so I'm trying to figure out does this amount to the timing shift in that to sort of a pull forward or maybe a bit of a push back of revenue, just trying to think about that?.

Between Q1 and Q2 and part of why we're not perfectly clear on exactly when they're going to start is --the timing changes relative to what they're thinking and so they could start early on Q1. They could start right in the beginning of Q2 etcetera, but between both of them it's literally a handful of clients with not a huge number of lives.

And so at the end of the day there is not a significant delta from our original expectations of what Q1 might start at, which is why we included in our comments the majority of clients and lives will be live one-one with a handful of them starting during Q1 and or at the beginning of Q2. .

And then I guess, just given the varying start dates, I mean are you guys seeing more opportunity to add new clients, perhaps, I guess we call it off cycle right outside of the one-one. It seems like clients are willing to tack benefit on in the middle of the year.

Am I reading too much into one quarter here or is that something you guys may be seeing?.

So it's a good observation in that -- this year has more off-cycle clients that we've seen in the prior year. I don't know if that's a trend yet, I don't know if one year in a row makes a trend, but it certainly is a positive trend relative to last year.

But it's not something that we push for, some certainly that we explain and we both sell and implement. That's always an opportunity but it's not something that we push for. It's usually the clients’ decision and directed that they want to do it or not.

But yes, it is an accurate observation that this year we should have more off cycle clients than we did a year ago, the selling season a year ago. But I don't know that one year yet makes a trend, but certainly positive so far..

And then maybe just last one from me, we're trying to back into sort of revenues or the unit economics here, and so fertility revenue I think includes the PEPM fees now, the per employee per month fees if not mistaken.

I think whether or not that it may look to us as a female utilizing members or revenue per female utilizing member may have declined a little bit year on year. Is that an accurate read and if so what drove that.

How are you guys thinking about that?.

So, couple of things, one is the PEPM is allocated across both the fertility and pharmacy benefit. And two, the average revenue per art cycle is a function of mix, not a function of decline versus price or anything else like that. Simply that the first different cycles are different dollar amounts relative to dollar amount per cycle. And they vary.

And second is there is variation across the country, well there's a price. So usually the fluctuations, not usually, but consistently, historically and today, the fluctuations are a function of mix not a function of some other pricing trend or anything else like that. .

[Operator Instructions] Our next question will come from Daniel Grosslight with SVB Leerink. Please go ahead..

Hi, guys. Thanks for taking the question. And congrats on a strong debut here. I wanted to ask about the competitive intensity, now that you have kind of opened up this market.

Obviously, the first carve out, publicly traded carve out benefit design, it's great for your branding, and it's great for you to build the market but you might have a lot of copycats out there now coming or so.

I was wondering if you could just touch on the competitive intensity now that you're a public company, and if you’re seeing any rumblings of the large MCIs trying to replicate what you're doing out there..

So a couple of a couple things, we have not seen those rumblings, which has been consistent with what's happened in the last several years. And you also have to take into account the time of the year that we are sitting in and when we went public. In the prepared remarks, we talked about the 2019 selling season largely coming to a close.

So, again we are and our potential customers are kind of winding down efforts to bring on new things for next year, as they focus on the things they're committed to and getting them implemented.

So, and as Pete said before the selling season in 2020 will start in earnest February of next year and that's when you can get a better read on what the environment is. What we are seeing, and obviously we continue to talk to customers all the time.

And potential customers is a positive macro environment, excitement around what we're doing, how different it is, how unique it is and that we create, as I said in the prepared remarks, we make situations better for all the key constituents.

Our members are happier, are getting better outcomes, our employer customers are saving money and physicians feel like they actually can practice medicine solely focused on getting the best outcomes. So that is really the powerful message in the marketplace we expect to continue to be..

And as you continue to build a bolus here with all these new member adds. I'm curious if there's room for you to improve the reimbursement rates at your network.

Is there any room for gross margin improvement by reducing payments to your providers?.

There's opportunity to improve it marginally. Not significantly. Part of the reason for that is that all the clinics that are in our network have different contractual arrangements that start and end at in different periods of times. And the opportunity is using mostly around those that renew where we have the highest concentration of covered lives.

And as we do that their part of those savings we do share back with our clients. And so overall, the margin improvement around the reimbursement rates is going to be marginal, but we do expect to improve that over time..

This will conclude today's question-and-answer sessions, as well as today's conference. Thank you for joining us today. And you may now disconnect..