Good afternoon, ladies and gentlemen and welcome to the Progyny Incorporated First Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, James Hart.

Sir, the floor is yours..

Thank you, Catherine. And good afternoon, everyone. Welcome to our first quarter conference call. With me today are; David Schlanger, CEO, Progyny; Pete Anevski, President and COO; and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions.

Before we begin, I'd like to remind you that today's call contains forward-looking statements, including, but not limited to, statements about our financial outlook for both the second quarter and full year of 2021.

The impact of COVID-19 on our business, clients, member activity and industry operations, our ability to acquire new clients and retain existing clients, our market opportunity, size and expectation of long-term growth, our forward governance, plans, business performance, industry outlook, financial outlook, strategy, future investment, plans and objectives and other non-historical statements as further described in our press release that was 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 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.

Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10-K.

During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available @investors.progyny.com. I will now like to turn the call over to Dave..

Thank you, Jamie. And thank you, everyone for joining us today. We are pleased to report a solid start to the year, reflecting record quarterly revenue, strong utilization and the continued expansion of our margins. Mark will walk you through the details of the results in a few moments. But here are a few of the highlights.

Revenue grew 51% over the first quarter of last year to $122.1 million.

Average members in the first quarter grew nearly 30% from the year ago period to 2.7 million, reflecting not only the addition of our newest clients, but also the organic growth we've seen within our existing base, as our clients have continued to expand their workforce over the last year.

ART Cycles in the quarter grew 48% to nearly 6,600, which is the most cycles we've ever managed in the quarter.

Female utilization ticked up on a sequential basis in the fourth quarter of 2020 to 0.47%, demonstrating that fertility continues to be a priority for those who need treatment in order to start to build their families, even against the backdrop of the ongoing pandemic.

And lastly, adjusted EBITDA in the first quarter more than doubled to $17.3 million and our margins increased over the first quarter last year. In addition to these strong results, during the quarter, we also successfully ensured that the onboarding for the 44 new clients who went live with their Progyny benefit went seamlessly.

From an operations perspective, the first quarter will always be critically important to us, because unlike businesses that grow ratably throughout the year, the substantial majority of our new clients begin their progress with us on January 1st.

As a result, we need to prepare in advance for a step function increase overnight in our business volumes, which demands that we have the necessary processes and personnel in place to ensure the smooth launch of each client. As we have done in the past.

This year, we have successfully completed our newest implementations, and had been managing the increased volumes of member activity, while also maintaining a focus on the service levels for all of our clients, both new and existing.

Each year one of our strategic priorities is to ensure that we not only maintain the industry-leading service levels our clients have come to expect from us. But then we identify ways of improving that experience for both our clients and their employees each year.

We believe that is because of this focus that we've been able to maintain very strong levels of client retention since our inception.

One of the ways we foster strong relationships at the client level and reinforce our value proposition is through extensive quarterly reviews, we provide comprehensive reports containing hundreds of data points, detailing the experiences and outcomes our clients members have with Progyny.

In addition, we also conduct an extensive annual review with each client to both deepen our understanding of the specific issues that are important to them and to further reinforce the unique benefits of our solution. These reviews typically happened during the first quarter.

And one of the recurring themes we've heard from clients so far this year is that, Progyny has distinguished itself by being one of the few or even only health solution provider, where the clients aren't hearing employees report negative experiences during the COVID outbreak and remote work environment.

The result of this feedback is also demonstrated in our NPS Score this quarter, which increased to 81 for fertility services, which is the highest it's ever been.

This exceptional result indicates that members continue to raid Progyny at or near the highest possible scores, which we believe reflects both the quality of the service we are providing, as well as the outcomes we are achieving. I'll spend a few moments discussing each of these starting with the quality of our service.

One of the core components of our service is the unprecedented level of patient education and support that we provide to help members navigate through the complexities of their fertility journey.

By now, many of you are familiar with the role our PCAs have in providing the service, but you may be less familiar with the other ways we are supporting our members. For instance, we routinely hold events to provide members with relevant topical information on issues of importance to them.

Recently, we held webinars examining issues of infertility and maternal health in the black community, fertility preservation for cancer patients, and what fertility patients need to know with respect to the COVID-19 vaccine. We are also mindful that our members are very diverse and have many different perspectives.

As just one illustration, we enhanced our content geared to the male partner in the family building journey to address issues of male infertility.

We've created similarly in-depth content on managing mental health during the fertility journey, and on explaining the pathways to parenthood that are available for same sex couples or single parents by choice. Turning now to our outcomes.

The CDC and the Society for Assisted Reproductive Technology recently released their latest fertility data, which reaffirms that Progyny's outcomes continue to significantly outperform the national averages. To highlight just a few of the takeaways.

Our pregnancy rate is now 16% better than the national average and our miscarriage rate is 26% lower than the national average. As a result, our live birth rate, which had been 23% better than the national average a year ago is now 25% better.

In practical terms, our higher live birth rate translates to meaningful financial savings because the client needs to fund significantly fewer rounds of IVF treatment with Progyny then they would otherwise have otherwise would in order to help their employees achieve their family building goals.

An important point to note is that, Progyny's live birth rate has improved 14% since 2016, while the national average has remained flat. This shows that we've been improving while other benefit managers have not. Lastly, our single embryo transfer rate now exceeds 90%.

And our multiples birth rate, which at 2.8% is close to the natural twinning rate is now 72% better than the national average, multiple gestations or high-risk pregnancies and the largest cause of pre-term births.

So this outcome translates to significant downstream, medical cost savings for problem clients, because they avoid those substantial maternity and NICU costs, as well as the chronic care costs that are associated with low birthweight babies that often result from twin and triplet pregnancies.

Let me now turn the call over to Mark to walk you through the quarter.

Mark?.

Thank you, David. And good afternoon, everyone. I'll begin by walking you through our first quarter results and then provide our expectations for the second quarter and the full year. In the quarter, revenue grew 51% over the first quarter last year to $122.1 million.

This growth was primarily due to a higher number of clients and covered lives, though as we previously reported, revenue in the prior year period was negatively impacted by lower utilization when fertility clinics temporarily closed at the onset of the COVID-19 pandemic.

Breaking down the components of the top line, medical revenue increased 50% over the first quarter last year to $88.9 million. Pharmacy revenue increased 54% in the quarter to $33.3 million. While we continue to be very pleased with the progress of pharmacy adoption. Since we launched the service in 2018.

There remains a future upsell opportunity to more of a - more than a quarter of the client base. As of the end of the quarter, we had 179 clients, representing an average of 2.7 million covered lives during the quarter.

This compared to 132 clients and an average of 2.1 million covered lives in the first quarter last year, reflecting growth of approximately 30% in covered lives over the past year. Taking into account the clients who launched their benefit following the close of the quarter, we now have 180 clients, each with at least 1000 covered lives.

Turning now to our utilization metrics, there were 6,558 ART Cycles performed during the first quarter. This represents our highest ever quarterly total of cycles and reflects a 48% increase as compared to the first quarter of last year. The female utilization rate this quarter, which is what really drives our financial results was 0.47%.

This compared to 0.411% utilization from a year ago. Again, utilization in the prior period was negatively affected by the temporary disruption in Fertility Care caused by the onset of the pandemic.

However, we continue to believe that our current utilization demonstrates that Progyny's fertility volumes have effectively recovered, reflecting both the essential nature of treatment as well as its time sensitivity.

As a reminder, utilization rates will vary from quarter-to-quarter due to a number of factors, such as when new clients go live, the time of year and the demographic mix of the newest clients. Turning now to our margins.

Gross profit increased 74% from the first quarter last year to $28.9 million, yielding a 23.7% gross margin, an increase of 320 basis points from the year ago period.

The increases due to favorable new terms with our pharmacy program partners, the net impact of regular contract renewals with our providers, as well as the continued deficiencies we have realized across our care management services.

As a reminder, our margins in the first quarter of 2020 were negatively impacted by our decision to keep all of our employees in place, including our care management staff, despite the pause and treatments at that time, due to the onset of the pandemic. Turning now to our operating expenses.

Sales and marketing expense was 3.3% of revenue in the first quarter, reflecting a 70 basis point improvement from year ago period. We continue to see improving operating leverage in our sales and marketing functions as we scale and benefit from our near 100% client retention rate.

G&A costs were 10.7% of revenue this quarter, as compared to 12.2% in the year ago period, reflecting the inherent nature of expanding margins on G&A as we grow our revenues.

With our strong top line performance and the margin improvements across the business, adjusted EBITDA more than doubled this quarter, from $6.7 million a year ago to $17.3 million this quarter. Our adjusted EBITDA margin of 14.1% this quarter, reflected a 580 basis point expansion from the year ago period.

Adjusted EBITDA margin on incremental revenue this quarter was 25.7%, reflecting the favorable comparison to the year ago period, when margins were negatively affected by the temporary pause and treatments. Net income was $15.2 million in the quarter or $0.15 per share.

This compared to net income of $3.6 million or $0.04 per share in the year ago period. Our improved net income and EPS in the current period reflects the favorable results I just described, as well as a $6.5 million tax benefit due to higher than estimated deductions on equity compensation activity. Turning now to cash flow in our balance sheet.

Operating cash flow during the quarter was $0.5 million, which compares to $12.1 million in the year ago period, which, as previously disclosed, included $6.7 million of favorable timing items. It's also important to note that in periods of significant sequential revenue growth, you would ordinarily see a negative impact operating cash flow.

However, in the year ago period, this was not as pronounced given that the shutdown in early March offset the usual effects of this dynamic.

Excluding those items, the year-over-year difference is primarily attributable to a change in the payment timing for our pharmacy partner arrangements and the ordinary impact to operating cash flow associated with our growth.

The timing change associated with our new pharmacy arrangements is also expected to result in the use of working capital in the second quarter. We expect operating cash flows to return to normal by the third quarter of this year. As of March 31st, we add $106.9 million of cash, cash equivalents and marketable securities.

Turning now to our expectations for the first - for the second quarter and full year 2021. As always, our guidance is based on the level of member activity that we are currently seeing. For the second quarter of 2021, we are projecting revenue of between $126 million to $131 million, reflecting growth of between 95% and 103%.

For adjusted EBITDA we expect $17.5 million to $19 million, along with net income of between $6.5 million and $8.8 million or between six and $0.09 earnings per share, on the basis of approximately $101 million fully diluted shares.

For the full year, we continue to expect revenue of $520 million to $540 million, reflecting a growth of between 51% and 57%. Given our strong start to the year, we are raising our profitability guidance for 2021.

For adjusted EBITDA, we now expect between $70 million to $75 million, and for net income of between $34.3 million to $42.2 million or between $0.33 and $0.41 earnings per - cent earnings per share, on the basis of approximately $103 million fully diluted shares.

In both the quarter and the year, our net income ranges do not reflect any estimate for discrete income tax items, including the income tax impact related to equity compensation activity. At the midpoint of this guidance, we're expecting to see continued expansion of our margins in 2021, with adjusted EBITDA margin on incremental revenue of 21.7%.

Let me now turn the call over to Pete..

Thanks, Mark and good afternoon, everybody. I'll begin with some qualitative commentary about our selling season as it relates to generating new business.

We spoke to you last quarter even though the selling season hadn't yet begun, the preliminary discussions we've had with benefit consultants and prospects revealed their hopes that 2021 would be a more normal year in terms of their ability to evaluate new benefits and make changes to their health plans.

Storm season has now begun and although it remains very early at this point, we are pleased to report that so far, things are feeling more normal. It appears as though companies are increasingly able to think about what the world looks like for them and their employees' post-COVID.

A year ago, many of these companies were distracted as they work through their COVID mitigation plans. As these distractions ease, companies should be in a better position to make decisions about their benefits than they were at this time last year.

At this point in the season, we're actively selling both pitching business to new prospects as well as reengaging with the differed accounts, who have given us the not now response in the previous selling seasons.

Our sales team is building pipeline, responding to RFP opportunities, engaging directly with accounts and fielding introductions made by the benefit consultants on our behalf to potential customers. The early activity we've seen through these combined channels so far has been very positive.

And pipeline additions in early sales commitments are favorable to prior year, and in line with our internal expectations at this point in the sales year. As a reminder, the go-to sales - sales season each year is to grow the absolute number of new clients and cover lives each year.

Obviously, last year's season became an anomaly because of how COVID affect the prospects in our pipeline. So we're looking at 2019 as the baseline from which we're benchmarking our sales growth. And we believe from a new sales perspective that we're on track to return to the historic trajectory we have been on been on prior to COVID.

As usual, we look forward to sharing more insight with you on our second quarter earnings call. But we continue to expect that the majority of client decisions as in prior years will be made at the end of the summer or early fall for implementations in 2022.

Another potentially important development for the selling season is the launch of our newest channel. During the quarter, Progyny was selected to be the fertility and family building benefits offering within CVS's health point solutions management program.

If you aren't familiar with this program, it's a full service offering from CVS Health that helps plan sponsors, including the word self-insured employers in our target market, to simplify contracting, secure the lowest price and monitor the ongoing performance for a variety of point solutions and healthcare.

Some of the other solutions in this program address heart health, mental health, weight management, stress management and musculoskeletal conditions.

We're incredibly proud that Progyny has been selected to be the facility and family building benefit solution in this program, as it recognizes that our offering meet CVS Health high standards for safety, quality and member experience.

Any provider subject to join the program has to undergo a thorough clinical security and business valuation process, and clients who choose to add one of the available solutions then benefit from the ongoing monitoring and offset - and oversight to ensure performance.

In short, this is an important validation of both the quality of our service and the security of - superiority of our outcomes, which David discussed earlier.

Our inclusion in the program makes Progyny available to CVS Caremark's commercial self-funded clients, some of whom we had already been pursuing and significantly simplifies the sales process for these accounts. We're enthusiastic about the potential for this relationship.

And we look forward to partnering with CVS Health Point Solutions Management to bring our leading fertility benefits solution to their clients. It is important to note that the launch took place after our 21 - 2021 selling season had already begun.

So while we can see an incremental impact to our 2021 sales season, it's too soon to know whether we'll begin to see more of the benefit and future selling seasons of this one. To conclude, we're very pleased with our results this quarter, which demonstrate that we have continued to execute against all of our strategic initiatives.

In addition, we continue to believe that Progyny is in its strongest ever competitive position that our market opportunity remains, are we unpenetrated and that all the macro factors have contributed to our growth remain intact. With that, operator, we'd like to open up the call for questions..

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Stephanie Davis with SVB Leerink. Your line is live..

Hey, guys, thank you for taking my questions. Congrats on the quarter..

Thanks, Stephanie..

Thank you..

Thank you..

So I think anyone on this call would be hard pressed to say they haven't at least been invited to a DNI initiative at their firm.

With that in mind, how does this impact your messaging and maybe the salesforce education process for the upcoming selling season?.

So it's a good question, Stephanie. So you know, we at Progyny kind of since the beginnings of the company, have been very focused on equity.

And as it relates to fertility benefits and making sure that our customers understood that our benefit is designed to work for all employee populations, and not just have equity across employee populations, but make sure that there was equity also, with respect to the utilization of the benefits.

So by having a cycle-based benefit versus dollar-based benefit, you know, we can make sure that everybody gets the same number of chances to build their family, regardless of how complex their cases or where they live in the country, given that pricing did vary so dramatically by region.

But we've really kind of - we've continued to evolve, how we help companies from the debt, diversity, equity and inclusion perspective.

One of the things that's really come out in the past year is that, and that people are talking about that, you know, there are historically had been very significant ratios, you know - race differences, as it relates to healthcare and healthcare outcomes. And that also applies to fertility.

So with fertility, we know that people in the black community have the higher incidence of infertility, a significantly higher incidence of infertility, but also, they have a lower incidence of seeking treatment for infertility.

So we're making sure that in addition to the structural things we've done, to make sure that our benefit is available to everyone, and that spans employee populations, we're making sure that when we support members, that we're supporting members in a culturally competent and sensitive way.

So we're training our, you know, we've trained our staff and we're working on ways to help address those racial disparities, as it relates to health, access to health care and healthcare outcomes.

So and, and, and obviously, this is a conversation that we have with our customers and prospective customers, we know these initiatives are important to them. And we're - and again, we're trying to help them with their initiatives. And as I just said, you know, we're continuing to evolve as the requirements for D&I continue to evolve with us.

So and, you know, beyond kind of how we've trained the staff, you know, we're also doing things like creating content, podcasts, webinars, live events that deal with some of these issues, so that our members can be educated about these issues and understand how they can actually help themselves address some of the, you know, some of the disparities that have existed, but clearly, you know, the trend and focus on DEI and Corporate America, and as it relates to benefits is an important, you know, tailwind to the business.

And again, so one that we very comfortably fit into..

And just a follow-up on that one. For the sales process. I imagine it's also probably a little bit different than just a feet on the street model. There's different channels then you could talk to about sort of D&I and inclusion initiatives.

Have you explored any of these channels? Or is that something that's going to be kind of a future opportunity?.

No, no, we certainly, you know, and again, it's been part of the DNA of the company. You know, we're comfortable having conversations with Chief Diversity Officers, for instance, and our corporate clients do that.

So certainly, we're making sure that our clients understand how adopting a benefit, like the Progyny benefit can help them further their own DI initiatives. So it's really been part of where we've been from the very beginning.

But, you know, as you know, as awareness around other issues continues to surface, we continue to evolve and make sure we're addressing those issues also..

Super helpful. Thank you, guys..

Thank you..

Your next question is coming from Anne Samuel of JP Morgan..

Hi. I was hoping. Great, thank you. I was hoping you could provide a little bit more detail on the margin improvement, really nice incremental margins this quarter. What changed with the pharmacy terms? And then as we think about your high-teens longer-term target, is there upside to that now? Thanks..

By the way, welcome back. Nice to hear you again..

Thank you..

No problem. So whaddon versus the original guidance that we put out in early March, we were in a process around the entire supply chain around our pharmacy program. And we had RFPs out there.

And so that process didn't culminate until really the end of the quarter, beginning of - you know part of it at the end of the third quarter, part of the beginning of the fourth quarter. And the long, short that is, is that ended up being favorable to what we had insight into earlier -.

First quarter, second quarter..

Yes, sorry, first quarter second quarter, apologies. And was favorable to what we had visibility into when we put out our guidance. So that's where the improvement came from.

And then to the extent that we're able to continue that type of improvement, yeah, it could raise sort of the long-term view of where we might get to ultimately, but as you know, we haven't really sort of updated that long-term view, except for when we were, you know, on our roadshow, gone public, what we'd rather do is continue to point out, you know, the leverage and expansion in margins that we're able to achieve, and continue to focus on the overall business and what we could do, as opposed to sort of just setting targets, but it's certainly indication that that could be the case..

That's really great. And then, you know, maybe just on utilization, how do we think about what happened to those cycles that maybe didn't happen during COVID? You know, you're back to baseline now.

But you know, is there any potential for those lost cycles to come back?.

You know, there always is the potential right.

The question is and the challenge has always been for us, you know, how do we quantify how many lost cycles there were? How many of them have already come back? How many of them are coming back slowly, et cetera? And so the difficulty is, you know, we don't know exactly, because we only know those folks that we talked to not the members that we don't talk to, that are pausing on their own and not calling us.

And so it's really difficult to get visibility into, you know, how much there may still be, you know, members that are sitting on the sidelines, if you will, either they add a need for the moment, and how many more of that may come back, as vaccines roll out, et cetera. So I wish I could quantify that if I could, I would bake it into the numbers.

But certainly possible. I just don't know exactly how we want to quantify that..

That makes sense. Thanks, guys..

Your next question is coming from Ralph Giacobbe from Citi. Your line is live..

Hey, thanks. Good afternoon. So I guess, obviously strong top line number in the first quarter guidance for the second quarter also looks like it's ahead.

But you did keep top line guidance unchanged, keep this open anything to sort of call out to reconcile, as I would think, you know, 2Q could have been sort of the pause quarter, if you will, on hesitancy due to vaccinations. But that doesn't seem to be the case.

So anything else in the second half that sort of hold things back a little bit?.

Nothing. Nothing at all to read into relative to our Q2 guidance, and our full year guidance versus our Q1 results. We're not holding back. Well, we're projecting based on normal utilization patterns that we see and how they give us indication as to what we might expect, in the back half of the year.

Historically, we there is, you know, first half second half sort of seasonality, if you will, relative to how, when the new plain year turns for both new and existing clients, you know how members utilize the benefit. But other than that, really, really nothing.

I wouldn't call it holding back I would call it you know, this is the best visibility that we have and the best guidance we could put out there relative to that visibility..

And then, just on the pharmacy contracts, maybe just remind me how the economics flow on that RX benefit. Is it just the markup? Is there any pass through doesn't seem like, you know, there is or what is the pass through essentially to your customers versus what you keep? And then you also mentioned contract renewals with your providers.

Is that just annual update? Was there sort of a greater portion approval, given everything that happened last year? And certainly does seem like this pressure is there, but maybe anything in your discussions on whether there is or could be more on rate that they're looking for? Thanks.

Well, we don't quantify how much we do, we don't pass back to our clients. But we do adjust prices. When we have favorable economic arrangements. The majority of sort of what we get, if you will, economically, we share with our clients, and we've been doing that for years. And it's also what we're doing this year.

And so you know, whenever we have an opportunity to do the right thing by our clients, we do that. But at the same time, we do have a focus on sort of growing the business and growing margin sort of overall, incrementally over time. What was -.

Provider side just recurring provider negotiation..

The providers all have different. And that's why we sort of call that normal recurring negotiations. The providers all have different contractual start and end periods. They're generally two-year agreements. And so, you know, they all sort of, you know, every quarter cycle in and get renegotiated and set there in the network.

The thing that changes and can impact any period is the volume of providers that may have a higher volume of our overall members going to them and therefore can have a bigger impact in any one period, et cetera, in terms of what gets negotiated within the quarter, but for the most part is normal recurring, you know, contract and rate discussions, you know, generally a data-driven discussion with our providers that we've been doing, you know, over the years..

Okay, got it. That's helpful. Thank you..

Thanks, Ralph. That concludes the Q&A portion for today's call. I'd now like to turn the floor back over to James Hart..

Thank you, Catherine. And thank you, everyone for joining us this afternoon. Please, if you have any follow-up questions following the call, don't hesitate to reach out to me. And we look forward to speaking to you again next quarter. Thanks again..

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation..