Progyny, Inc. (PGNY) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to the JPMorgan Healthcare Conference. My name is Annie Samuel, and I cover Healthcare IT for JPMorgan. It's my pleasure this morning to introduce Progyny. With us this morning is CEO, David Schlanger. We'll be taking questions after the breakout in the Yorkshire room, and there we'll be joined by President, CFO and COO, Pete Anevski as well. And with that, let me turn it over to David.

Thanks, Annie, and thanks, everybody, for coming out this morning. I'd like to thank Annie and the rest of the JPMorgan team for giving us the opportunity to tell our story to you this morning. So before I get into the meat of the presentation, I'm just going to pause briefly on this slide, some legal disclaimers regarding any forward-looking statements or non-GAAP financial measures that may be in today's presentation. Before I get into the details of our business at Progyny, I wanted to give everybody a high-level overview of who we are at Progyny and what we do. And at a very high level, Progyny, we help people have families. And we do that by offering to self-insured employers a fully carved out fertility benefit solution for their employees. We launched with our first 5 employer customers in 2016, and we've grown rapidly since then. So we now have 137 employer customers that represent almost 2.1 million lives. What's fueled our growth is the fact that Progyny takes a very differentiated approach to benefit plan design and management. And as a result, we've consistently generated clinical outcomes for our members that far exceed national averages. What that means is that our members get pregnant faster, they get pregnant more often and they have healthier pregnancies. So that means fewer miscarriages and fewer multiple babies. We've also achieved scale from a financial perspective. On December 4, 2019, we put out full year 2019 revenue guidance of between $229.6 million and $231.1 million. We're also profitable. And on December 4, we put out full year EBITDA guidance for 2019 of between $18.3 million and $18.6 million. We're capital-efficient at Progyny. So we have -- our EBITDA translates into free cash flow at a very high level. And the last thing that you should understand is that Progyny participates in a large market of over $12 billion, and we've just begun to scratch the surface in penetrating that market. A quick word about our customers at Progyny. And we're very proud at Progyny to have many of America's marquee companies as customers. Early on in the company's history, our customers were highly represented by the tech industry. Since that time, as we've grown, what's been really nice is that our customers now represent a very diverse set of over 20 industries. So you can see on this slide, we have pharmaceutical clients, financial services clients, consumer packaged goods companies, retailers, law firms and even a school district. And what this really means is that the Progyny benefit resonates with all types of customers, regardless of whether they are an old economy company, regardless of the industry, regardless of how highly compensated their employees are and regardless of what geography they're in, they all see benefit in the Progyny program. I'm going to provide as much detail as time will allow me today about our business, but I hope you leave today's presentation remembering some themes about Progyny. And here are the key themes about our company. The first is that Progyny is very well positioned as a market leader in a large, growing and underpenetrated market for fertility services. The next is that we do take a differentiated approach to benefit management. As a result, we drive superior clinical outcomes. And as a result of that, we can save our employer customers' money compared to their other alternatives for fertility benefits. The next is that we have a large base of marquee customers, but those customers are very diversified by industry, and we have enormous headroom to continue to grow our list of clients. The next is that over the past 5 years, we've really established some significant competitive advantages at Progyny, and as a result, feel really well positioned to continue to grow. And then finally, we have an attractive financial model. Our revenues are growing rapidly. We have expanding profit margins and strong free cash flow. I mentioned before that Progyny participates in a large market for fertility treatment services. The reason the market is large is that infertility is a very common health condition. It affects 1 in 8 individuals. And you can see from the chart on the left, that it's actually more common than diabetes and asthma. In addition, the demand for fertility services is growing, and it's growing because of societal factors. The first important societal factor is that couples are waiting longer than ever to have children. The biological clock is real and woman's egg quality and egg quantity declines with age, and as a result, the more and more couples are suffering from infertility and having trouble getting pregnant naturally. In addition, there's been a growing acceptance of nontraditional paths to parenthood. So for instance, same sex couples that want to have a child, a single mom by choice that wants to build a family, they need fertility treatment services to do that. You can see on the right side of this slide that the market for IVF services in 2017 was a $6.7 billion market, and that market has been growing at over 10% compound annual growth rate annually. We actually estimate that the market for IVF services is probably twice that size, over $12 billion because half the people in this country that want to get treatment forego treatment because of the cost of services. Before I get into the details of what we do at Progyny and how we've actually put together a superior fertility benefits program, I think it's important to give you all the context of the problem that Progyny was designed to address. Before Progyny came along, for an employer that wanted to provide fertility coverage to their employees, they really had one option. And that option was go to their carrier and have them structure a program. The problem is that the carriers structure fertility benefits coverage the way they actually structure coverage for all the other thousands of diseases and conditions that they need to manage. And that starts with a restrictive plan design that's created to limit utilization of services. In the fertility space, what they typically do is they create a dollar lifetime cap on benefits. And a typical number in the industry is $20,000 to $25,000. They tend to combine that dollar cap with restrictive protocols and restrictive rules in their plan, such as mandated step therapies. And in fertility, that may mean that a patient has to go through several failed cycles of IUI before IVF is authorized. And often, many, many of the latest scientific procedures and diagnostics are not even covered or they provide very limited access. An example of that would be genetically screening embryos. On top of that restrictive plan design, despite the fact that fertility treatments are complicated, despite the fact that they're expensive and that it's a physically and emotionally very grueling experience for the patient, the carriers provide virtually no patient support and leave patients on their own to figure out this very, very difficult medical journey. The next problem with carrier programs is that many of the nation's top fertility specialists don't participate in carrier networks. They don't participate in those networks because they have thriving cash-pay practices. And frankly, they don't want to deal with the hassles of working with the carriers, particularly those restrictive plan rules I mentioned before. And then lastly, and this is typical throughout all health care is that the carriers manage access to treatments, PBMs manage access to medicines and in fertility, that creates some very unique patient abrasions, particularly as it relates to getting medicine in people's hands. The PBMs typically take 10 to 14 days to approve medication and get it in people's hands. And fertility treatments, which are time-sensitive and have to be timed around a woman's menstrual cycle, what that means is that a woman misses that month's cycle and have to wait another month for treatment, and that's really an interminable wait for a woman suffering from infertility. The net result of all this is that there's suboptimal outcomes and a poor experience for everyone involved. I want to look at what that -- what a carrier program looks like from a patient perspective. So here, we have Sara. She's a heterosexual woman. She's been trying to conceive naturally and been unsuccessful. Her employer provides her a $20,000 fertility benefit. Their carrier requires -- required her to go through 3 cycles of IUI and fail before she could be authorized for IVF. That exhausted a lot of time, but also a lot of her coverage. And at this point, Sara has probably exhausted $10,000 to $12,000 of her $20,000 coverage. She's now authorized to pursue IVF, but IVF costs, on average, about $25,000. So Sara takes out a loan to pay for the rest of her treatment. She's very concerned about money and wants to keep her loan value very small. So she forgoes genetic testing of her embryos. She makes a compromise in her care based on cost. What happens is that Sara does get pregnant, but she miscarries because that embryo wasn't healthy. So Sara now has to go through a second round of IVF and borrow more money. Again, concerned about money, she makes another compromise in care and insists her doctor transfer multiple embryos. Sara has a -- now has a multiple pregnancy, which is high risk. She delivers preterm by Cesarean section and her babies have an extended stay in the NICU. Sara's employer pays those medical costs of her high-risk pregnancy, preterm delivery and the NICU stays for her baby. In addition, Sara takes an extended amount of time off of work. Those costs that her employer are bearing are part of a national health crisis in America, where, as a nation, we spend almost $34 billion on the cost of high-risk pregnancies and preterm deliveries. Multiple births are the #1 cause of preterm birth and IVF is the #1 cause of multiples, accounting for 20% of the multiple births in America, even though IVF only accounts for 2% of the babies. In addition to those medical costs that employers bear, they also have to suffer the workplace consequences. So individuals going through this infertility journey have a high rate of absenteeism, they have poor productivity; and often, when they give birth to multiple babies, very poor retention rates. So now that you understand the problem Progyny was designed to address, what do we do uniquely at Progyny to create a better solution and an optimal solution for our employers. Well, there's a lot of detail and execution that goes into this, but at a very high level at Progyny, there are a handful of things we do differently that create a better solution. The first is that we have a benefit plan design focused on outcomes, not focused on limiting utilization of services. The next is that we provide an extraordinarily high level of patient support and guidance, so that patients know the right thing to do and have the courage to make those decisions. The next is that we've been very fortunate at Progyny in that we have the top doctors participating in our network. But it's not just who's in our network. It's how we actually manage and monitor that network using data to ensure our members receive the best care. And then the last thing is, we've integrated the management of drugs with the management of treatments and eliminated all of those patient abrasions. Everything we do sits on top of the country's most comprehensive fertility data repository, a very sophisticated data architecture, and that data really informs everything we do. The net result of all of this is that we create better outcomes and value for all of our key constituents. Before I get into the details of the Progyny program, I just want to spend a moment talking about our outcomes. On this chart, the blue bars represent Progyny's outcomes for its thousands of patients. The light gray bars represent the national average outcomes reported to the government for all fertility specialists in America who are required to report their outcomes to the government by law. You can see, in every instance that the Progyny results are better than national averages. So starting on the left side of the slide, we have a higher pregnancy rate, a lower miscarriage rate; and as a result, a 26% higher live birth rate. It's very easy for us to demonstrate to our customers that if we have a 26% higher live birth rate, they will need to fund fewer IVF cycles for their employees. Continuing to the right side of the slide, we have a much higher single embryo transfer rate. You can see that ours is almost 90% compared to the around 50% average nationally. And as a result, we have a much lower multiple birth rate, 3.6% compared to 16.1%. Again, very easy for us to establish to our customers that you're going to spend less money on high-risk preterm birth, if we have a 3.6% multiple birth rate. There's another data point on this chart, and that's the gray bars. And the gray bars are the outcomes reported to the CDC by just the Progyny network docs. And you can see Progyny network docs for all of their patients have marginally better outcomes than the national averages. But nowhere nearly as well as they do for progeny patients. And why is that? The reason for that is that all of the things we do uniquely, our benefit plan design, our patient care and support and the fact that we actively manage the network, it's a combination of those elements that are really responsible for our outcomes. So now I want to get into what we do uniquely at Progyny. It starts with our benefit plan design, that unlike the carriers, our benefit plan design is denominated in smart cycles, our own proprietary currency. And we have 17 unique smart cycle bundles that are all-inclusive, and that each have a unique smart cycle value. You can see some of those on the right. The key thing about our benefit plan design, beyond the fact that it's not denominated in dollars, is that it provides to our patients and their physicians access to all of the latest technology, diagnostics and procedures without any of the precertification requirements, without any of the restrictive plan rules like mandated step therapies that the carriers use, which allows doctors to customize care based on the patient's unique needs and also to get patients in the most effective treatment first. The other thing is that our benefit is comprehensive in that it -- a member is always covered for a full treatment cycle and never has to worry about running out of coverage midcycle. The next important thing is that our benefit plan design is equitable by denominating it in intensive care. If a patient is a more complex case that needs more services, if they live in an area of the country where treatment is expensive, they are not at disadvantage versus a patient with a simpler case that lives [ in there ] or one who lives in an area of the country where care is less expensive. And from an employer's perspective, it's pretty easy also because all an employer needs to figure out is how many smart cycles they want to fund for their members, what's typical is 2 to 3 smart cycles is what an employer will provide to their members. Now let's look at Sara's experience under Progyny. Her employer provides a 2 smart cycle benefit. She tries to conceive naturally, is unable to. She contacts one of our fertility experts. We call them PCAs or Patient Care Advocates who helps her find a doctor, the doctor recommends a frozen IVF cycle with genetically screening embryos. Sara has spoken to her PCA. She knows that's a very effective treatment and a safe treatment and she goes ahead. And lo and behold, Sara has a full term birth. She gives birth to a healthy baby, a singleton baby, and she still has 1 smart cycle left to have further attempts at pregnancy. I just started mentioning our member support services, and this is truly a unique thing that we do at Progyny. Every single member gets assigned a designated PCA or fertility coach. And that fertility counselor speaks to their members on average of 15 times during their course of care. And those discussions are everything from logistical ones, finding a doctor, scheduling appointment, all the way through clinical education about treatment options, all the way through emotional support. Our PCAs typically have industry backgrounds. They may be clinical. They may be nurses or doulas or social workers, but regardless of their background, we put them through a very rigorous 3-month training program. And it's important to know that our member support group and our PCAs are led by our in-house clinical staff. Our Medical Director is a practicing reproductive endocrinologist. Our VP of Member Services is a licensed clinical social worker, who ran one of the largest practices in New York. And we have a -- on staff a clinical psychologist, who is an expert in the emotional strains of fertility. You can see on this slide some of the feedback that we get from our -- some examples of the feedback we get about our PCAs, and this is very typical and "I feel like for once I'm not alone and someone has my back." This is what causes us to have a 71% Net Promoter Score. For those of you who know, if you compare that to what the health plan world has, they're usually around 0. But the best testament to the relationship our PCAs develop with their members is that we've had babies named after our PCAs. So let me talk for a moment about our network. Our network is pretty special also. It's big, 600 locations, 800 docs. I mean, national network, providing coverage to our members wherever they live, but it's not just big, it's also exclusive. Doctors have to be invited into the network. We have rigorous credentialing standards and inclusion standards, and we're very lucky that we have the prestige practices that patients want to see. In fact, 30% of our docs don't even work broadly with the carriers. And you may ask yourself, why would they work with Progyny and not work broadly with the carriers. And it's for a couple of reasons. The first is our benefit plan design encourages and empowers doctors to use best practices and really create the best outcomes. Our patients come to see doctors, and they're educated about the right thing to do. They're inclined to make the right decisions. They don't try to force the doctors to make compromises. And finally, we've eliminated a lot of the hassles about working with the carriers, even to the point where we collect member responsibility and fully compensate the docs. But as I mentioned before, it's important to note that we actively manage the network using data. Each of our docs is required to provide us detailed outcome and treatment data for all those -- all their patients. We take that data, we create quarterly clinic scorecards, we report back to the doctors on 300 data points, so they can see how they're doing, how they're doing against the rest of our network, the docs find great value in it, but it really allows us to see what's going on at each practice, intervene when necessary, work with practices to improve. And that active management of the network really has a lot to do with the outcomes we generate. I mentioned before that we've integrated the management of medications and the management of treatments and eliminated many of the patient abrasions. The first thing is that fertility treatments require long cycles of self-administered hormone injections. And for most people, that's pretty intimidating. So we've extended our concierge member support to the medication administration. It starts when a member gets their medications delivered to their home. We have a clinician call them and open the box with them to explain what's in the box and actually how to do it. But really importantly, by creating a single authorization for medications and treatments, we've eliminated those delays. Patients get the medications the day after seeing their doctor, and there are no more missed cycles. But our pharmacy program isn't just good for our members, it's good for our customers. We've gone out to the pharmaceutical industry, negotiated our own purchase arrangements, and we're saving our customers on average 20% unit costs versus what they were paying their PBMs. Because of the collaborative relationship we develop with our doctors, we also have been able to implement clinical waste management protocols and eliminate some of the overprescribing and overdispensing that's common in the fertility industry. And as a result, we're saving our clients an additional 8% because of lower dispense volumes. Because of the value of the pharmacy program, 75% of the new clients that we sold in 2019 for 2020 implementations have adopted the pharmacy program. I talked before about our customers. And this slide really just shows you the annual build of our customers to the current 137 customers, representing 2.1 million lives. What's really helped fuel that growth is that we have essentially 100% client retention rate. And we have 100% client retention rate because clients really see the value of the Progyny program. And we help reinforce that with very detailed quarterly reporting. So clients can see activity in the program, what they're spending, the outcomes and the value they're getting. And it's really important that client retention allows us to have very strong recurring revenue and predictable revenue. The other thing that's important to note about our clients is that 2/3 of our customers had some coverage before they elected to the Progyny program. That coverage was through their carrier, and they left their carrier to come to Progyny, and in all cases, expanded their coverage. But 1/3 of our customers never had any coverage before. What that really means is that all self-insured employers, regardless of whether they have a program in place or not, are targets for us. And there are 8,000 self-insured employers in America. So we have a very large market to go after. I do want to spend a minute to talk about the competitive environment. So I've been talking about the carriers a lot. The carriers are still our primary competitors. It's the easiest thing for an employer to do that wants to provide coverage is to ask their carrier to do it. But there are also some direct competitors that have sprung up recently, and they're typically VC-backed. With respect to all of our competitors, whether it's the carriers or some new entrants, we have a very significant lead. We've been doing this for 5 years. We've developed a lot of insight and expertise, made significant investment in platforms and systems. And it would take any of these companies a significant amount of time to catch up to where we are. When you look at the carriers as potential competitors, we've really seen no movement in the past 5 years of the carriers to improve their programs. Maybe it's because the carriers are focused on the $3 trillion of health care expense that's running through their companies and not the $12 billion fertility opportunity. But even if they were to try to compete, they'd have to retool their business practice to do that. But even if they did that, we'd only be competing with any carrier for their captive ASO business. So for the carriers to be effective competitors, many of them would have to get involved. And if they tried to get involved, they have some real hurdles. One of them is the network. They'd have a very tough time getting doctors participate in their networks, given the historical adversarial relationships they've had. The network is also an issue for the VC-backed startups in that without patient volume to offer these doctors, they're not really inclined to participate in new networks. The VC-backed startups also have another problem. They're not integrated with the carriers. So they can't offer their benefit like Progyny does as part of the health plan on a pretax basis. So these VC-backed startups really offer post-tax reimbursement programs, where the member gets an income tax hit for the value of the reimbursement of the program. So you could see really not comparable to what we do at Progyny. The last thing is that none of our competitors regardless of whether it's the carrier, the VC-backed startups can point to real-time outcomes that demonstrate their value, unlike what we do at Progyny. So again, we feel very well positioned versus our competitors and feel like we really have some sustainable advantages. We also feel very well positioned for growth. Starting on the left side of this slide, I mentioned there are 8,000 self-insured employers. We have 137 of them. So we're barely beginning. We also have some growth embedded in our existing client base. So the first thing is we do business with a lot of successful companies. They're adding employees and as they add employees, the size of the program will thus grow. But we've also had success upselling our customers. So if they didn't initially elect egg freezing, if they didn't initially elect the pharmacy program, we can upsell them to those programs. Many of our customers also add additional smart cycles as part of their coverage. We're also looking at new types of customers. So think about municipal employees, labor unions, universities, et cetera, that aren't corporate self-insured employers, but are certainly good candidates for our program. And then lastly, there are new services and adjacencies we can add horizontally and vertically that could both add stickiness to our program, but also add nice revenues and profitability. Finally, before I wrap up, just a brief slide on our financial results. You can see on the left side of the slide, from a revenue perspective, we've been growing at well over 100% a year. That growth is really fueled by both new client adds and by our high client retention rates. And you can see on the right side of the slide, we are profitable. And the profitability is growing. You can see at the midpoint of the guidance we issued on December 4, we have 13.6% EBITDA margin on incremental revenues. We've achieved that profitability because we built a scalable architecture and because we've been very disciplined in how we manage the business -- how we manage and operate the business. And then lastly, we're very capital efficient. So even from a technology perspective, we purchase hardware as a service. We purchase software as a service. They all run through the P&L. So our EBITDA translates very nicely into free cash flow. With that, I see I have about 30 seconds left. I'd like to thank you all for coming, and hope to see you all at the conference and at the Q&A right now.

Good morning, everyone. Welcome to the Progyny breakout at the JPMorgan Healthcare Conference. My name is Annie Samuel, and I cover Healthcare IT for JPMorgan. With us this morning are CEO, David Schlanger; and President, CFO and COO, Pete Anevski. I'll start off with maybe the first couple of questions, and then we'll open it up to the room for any questions that you might have. So the first question, we really -- we get this one often, is on the competitive environment. Who do you see as your primary competitors? And what do you think is really the thing that differentiates you?

Sure. And I covered this in the prepared remarks before, but we still see the carriers as our primary competitors. And as I talked about it before, pretty much everything we do is turn the carrier model on its head. We try to look at each element of the program, see where the carriers -- the carrier programs had shortcomings and design a better solution. So it starts with our benefit plan design, which is focused on outcomes, not on controlling utilization services. It's the extraordinarily high level of patient support and guidance we provide. How we actually approach managing the network is completely different. It's not -- we don't create a network and manage it just based on cost and location, but it's actually much more of an active model, where we're collecting data and utilizing that to work collaborative with our doctors to help them improve. So everything we do is really differentiated.

Great. And then maybe one -- can you help us understand how the integration with the carriers works? And that seemed to be another point of differentiation versus some of the other prescriptions out there.

So we integrate with the carriers and share data regarding member responsibility. So whether it's co-pays, deductibles, accumulation towards lifetime and annual maxes, so that we become essentially part of the health plan. So our expenses incurred for fertility count just like if you went to the doctor because you had strep throat. It allows us to offer our benefit on a pretax basis like all your -- all the rest of employees health benefits. In comparison, some of the VC-backed startups aren't integrated with the carriers. So they do not become part of the health plan. As a result, their programs are essentially post-tax reimbursement programs. So an employee can go see any fertility specialist, whether they're in network or out of network. If it's in network, they may get a discount. What they spend and get reimbursed by their employer is then taxable income to them. So they're essentially paying income tax on the value of that reimbursement, obviously, not a comparable benefit to what we do.

Maybe you could speak a little bit to what you've seen in terms of utilization year-to-date? And how is that changing as your customer composition changes?

Yes. Pete, you want to talk about utilization?

Yes, sure. Utilization, we look at utilization, primarily female utilization, for the benefit, on an annual basis, roughly 1.25%, 1.3% across our installed base. Now everybody is different. Each company is different in terms of utilization. But the thing that we've seen in -- starting with our clients that we launched in 2016 is that utilization stays consistent or goes up each year on a company-by-company basis. So where you might expect some pent-up demand and early utilization being high and then it coming down over the years, that's not the case. In fact, what we see is that utilization stays the same or goes up because people age in and out of those childbearing years. And as a result, the percent of the population that ends up utilizing the benefit is generally consistent or goes up little by little each year.

Go ahead.

Just curious, I know you talked about self-insured as kind of runway, but why you didn't integrate it to the other plan providers, why would it just be self insured?

Well, so we're integrated from the perspective that we share data between the 2 of us and our clients help make that happen because they tell their carriers that they need to integrate with us. But we're not integrated from a business perspective, where they're out there selling our benefit or we have a greater level of integration or partnership. We are certainly exploring a fully insured offering, where we could work with the carriers and become part of their book of business where they actually provide a fully insured benefit, but we're just at the very beginning stages of figuring that out.

You're saying self-insured in this offering, not necessarily that they're total self insured?

No. We are working with employers that are totally self-insured, that self-insured their medical benefit. They use the carriers for administrative services only, right?

That's correct. But you can't do it to somebody that's got a plan that doesn't provide this offering?

We are currently not doing that. We are not going to -- remember, those groups are very small. Pretty much any employer with 1,000 employees or above, it makes sense for them to self insure. That's a gigantic target market. There's 8,000 companies like that. So that's where we're focused on right now.

I guess, you mentioned that women [indiscernible] is there -- you also mentioned that, you gave an example that a woman starts with IVF immediately as part of counseling. Is there -- is that unequivocal, that you immediately go to the treatment?

No, of course, not. Yes, so the idea of our benefit plan design is to really put the decision-making in the physician and patient's hands and not mandate a one-size-fits-all set of rules. Each patient is very different. They have unique circumstances that are causing their infertility, and it really allows the doctor to customize care. Many times when a patient is covered by traditional carriers' plan, the physician really knows that IUI is not going to work, but they have no choice but to put their patient through IUI because their coverage demands it. So we help physicians and patients avoid that and allow them to get to the most effective treatment first. So IUI is certainly done not infrequently in our book of business, but it's only done when physicians think it has a decent chance of success.

You mentioned the drug cost savings in the presentation. I'm curious, is there like a bigger sort of headline number that you guys go to potential customers with and say, well, we tend to save you some percentage? And then on sort of a related note.

On just the drugs, or on everything?

The whole thing. And then on a related note, how receptive are potential customers to sort of more expensive treatments on the front end with hopefully preventing all this [indiscernible].

So what we do for every potential customer, we do a pretty complex and detailed financial analysis that shows them what a Progyny program looks like versus a carrier program. And it takes into account all the factors I mentioned in the prepared remarks. So it takes them to get our better outcomes, pricing, et cetera. And we show our customers that, on an overall program basis, including the treatments and including the way that utilization works on our program, that they typically save somewhere in the neighborhood of 20% to 30% on an overall program basis versus a carrier program, netting out all the savings, they will reduce NICU expenses, et cetera.

You just mentioned about the data. So my question is like, we have started trying to do a baseline [indiscernible] house data? And how is the -- how do you see the raw data. How they have improved your processes and reduced the cost for your benefit. Another question is like, data privacy [indiscernible] so how you are going to [indiscernible]

Well, first off, we obviously take the data privacy and security very seriously. We take the right of every one of our members to have their data kept secret. Obviously, very -- in private very seriously, but we do use data internally to certainly drive our decision-making, and it's always aggregated data that we're looking at. So -- we're a HIPAA compliant entity. So we comply with all federal regulations around data privacy and security and use best practices regarding data privacy and security. So I'm not sure I understood the rest of your question though.

How your increased data actually help you improve the efficiency of the benefit [indiscernible].

Yes. So the question is, how do we use data to improve the efficiency of the program. The answer is, we use data throughout the program in everything that we do. We use the data relative to the engagement that we have, where the patient care advocates engage with the members. We use the data relative to the treatment pathways that are done at each of our clinics. And to the extent that we review those practices with those clinics, they get a clinic scorecard, and that scorecard reviews versus the rest of the project network what those clinics are doing with the members. And so we use the data relative to the waste management program that we have, where we get patient stem sheets, and we understand the daily dosing instructions. So we use data throughout the program. As we continue to work with our clinic -- with our clinicians, they continue to share data, and we continue to gather more and more data. And as David said, under HIPAA regulations and what we're allowed to do under HIPAA, we'll use more and more data continually as we've done so far to continue to constantly improve the program.

What does sales cycle look like with your other benefits managers. And you generate revenues on a interval of month or based on utilization? And how does that...

So the first part of the question is what does the sales cycle look like? So the sales cycle actually varies pretty much. It's as short as a couple of months all the way through a couple of years. And it often depends on the size of the client and their procurement processes.

Direct sales force or...

We have a direct sales force that goes out and speaks to HR officers and benefits officers. We do work closely with the benefits consultants, whether they help us generate a lead or not. They're typically involved in the sales process, helping their employer customers assess our benefit versus their other alternatives. And we have very collaborative relationships with the major benefits consultant houses. And in fact, with 2 of them, we actually have contractual relationship. We work well across the entire spectrum. What was the second part of your question?

Revenue?

Okay. So yes, the question was, what is our business model? How do we get paid? We do have a very nominal PEPM fee. It's approximately 1% of our revenues. The remainder of our revenues is, I mentioned in the prepared remarks, we have 17 unique smart cycle treatment bundles. Each one of those treatment bundles has a bundled case rate, that we bill our employers. Embedded within that case rate are all the third-party costs, the physician, the labs; if it's pharmacy, for instance, the drug cost, but also includes compensation for all Progyny's care management services. So 99% of our revenue are those bundled case rates.

You talked about your doctor networks. If someone is moving outside of the bounds -- or have you seen someone move outside of the bounds or outcomes that has forced you to say you'll no longer be in the network? Have you analyzed that situation.

Well because -- the question is, what happens if we see something happening with a particular clinic with our network, will we ask those people to leave the network? And the answer is yes. We have done that. Typically, what we're able to do is both upfront set expectations with our clinics about how we expect them to treat our patients and the type of technologies and services we want them to use. But if we see something untoward going on that we can't improve with that practice, we have asked practices to leave the network.

Got it. Just another one. You mentioned that this is a very high potential cash-pay, it is a lot cash-pay business today. If I'm a practitioner, can I have cash business as well? Can you compare the practitioner making same amounts of money on both sides?

Yes. So the question is how does, from a doctor's perspective, working with Progyny compared to their cash-pay practices. We certainly get a discount versus cash-pay rates. So doctors are willing to take less. But you have to understand that there's capacity in the industry, that even though these doctors have thriving cash-pay practices, they have capacity. So they are happy to take -- to give us favorable terms to work with us, again, for all the reasons I mentioned in the prepared remarks and are happy for the business we bring them.

Yes, just to add to that, too. So the fact they're happy is that we're growing access to care at such a significant rate because it's such an expensive treatment protocol. Although it's cash pay today, the reality is most people who suffer from infertility can't afford the cash. And so at the end of the day, when you're growing such access to care, and you're getting reimbursement, the trade-off of taking a discount to your cash-pay rates is well worth it when you're able to bring them so many more patients. And as David said, with capacity in the industry, it's a very favorable relationship.

So maybe just a follow-up to that one. You said in the presentation that 1/3 of your clients didn't have fertility benefits before. As we think about that 8,000-employer market, how many of them have fertility benefits currently? Is it easier to kind of penetrate if they don't have it?

Sure. So there isn't great data on this, and you see all kinds of estimates. And Mercer, the consulting house, I think, did one estimate that 25% of all employers, I think, over 500 employees had some level of fertility coverage. Although, when I say some level, it varies greatly. They may just cover fertility drugs, they may just cover initial consultation. So it's not necessarily comprehensive coverage. When you look at larger employers, so over 25,000, the number gets closer to somewhere in the 40% range. But again, these are all kind of estimates and there isn't great data. If an employer already has a program and they have a decently robust program, so maybe they're providing a $25,000 benefit, money is already flowing through their P&L to fund that program. So certainly, you don't now have to go to those employers and say, you have to find P&L room to fund a fertility benefit. That is an additional hurdle when they have no program in place. And that's probably why you see the numbers, where 2/3 of our customers had some program before and 1/3 didn't. But we are having very good success even with companies that have not had a program before because they're realizing that covering fertility treatments for their employees is the right thing to do. That by not covering it, it's discriminatory against their female workforce. It makes a really negative statement about what that company stands for with respect to family values and family building, et cetera. So if they haven't had the benefit, you certainly have to convince them it's the right thing to do and make the P&L room. It's one more hurdle. But again, we've been very successful in many cases in climbing that ladder and making that happen.

Looking at the sales process with just a large employer, for example, is there typically something that there are a team and you're responding to that? Or you're the only person who they're talking to? And who you're up against most of the time outside of the HMOs?

Yes, so the question is, what's -- are there a lot of RFPs, and what are the competitive dynamics of the sales process? In fact, there are very few RFPs in this business. I think it's because there are probably not that many industry participants. Most of the time, we're direct selling. We might be -- it might be a competitive situation where we're direct selling against the carrier who may be including some case management capabilities that they get from the third-party on top of their own network and coverage program. But very few times, it's RFPs. Oftentimes, we're competing against the status quo, as I mentioned in the presentation, which is the employer just turning to their carrier and saying, create a coverage program for me.

And then when you think about the success you've had, I imagine, would inspire a lot of copycats. So what are the biggest barriers to entry, to recreating?

So the question is about barriers to entry that -- and again, I mentioned in the prepared remarks. So it starts with, our network would be very difficult to duplicate for a new entrant. If you don't have any patient volume, you're not going to get those docs to sign up. We have 5 years head start in systems expertise, insights. We have successfully integrated with all the carriers, and that's a very difficult thing to do. The carriers have no incentive to integrate with you. You're essentially taking business away from them, our whole sales pitches that they're ineffective at doing this. But we've been lucky in that early on, we had some very influential clients that forced their carriers to integrate with us. Once you integrate with a carrier, the next client is pretty easy because they tend to just say, okay, we may not want to do it. So we have a solid working relationship with the carriers. I wouldn't call them partnerships, but they've come to accept what we do. And again, we integrate with the carriers every day. Yes?

Is there any seasonality in how you recognize the revenue cycle from -- over the smart cycle?

Yes, there's a little bit of seasonality, mostly the phenomenon around the new benefit year. It starts for most companies is January 1. And second is, as that new benefit year starts and most people start treatment, the percentage of initial consults versus actual treatment is greater in the first half of the year than in the second half of the year. So a calendar year company is going to be roughly 45%, 55% in terms of revenue, just sort of how it plays out each year, but it's utilization based. And so it's going to book as the treatments or consults occur during the year.

Is there any concentration in certain geographies? And is any of that driven by state laws requiring fertility benefits?

So the question was, do we have any geographic concentration, is it driven by state law? So I would say, initially, there was some concentration on the coast. Certainly, as you know, the more forward-thinking tech and media companies took the benefit on. As we -- as I said in the presentation, as we have grown and diversified across industries and now our clients represent 20-plus industries, we're really much more geographically dispersed also. Now the second part of your question was, does some of the pending legislation affect any of that geographic concentration? The reality is that the state legislation that's starting to require -- the insurance regulations that are starting to require in some states' fertility coverage really only affect the insured population. It doesn't affect self-insured employers. But all that legislation is good because those insurance regulations tend to be a baseline for coverage for everybody in that a self-insured employer doesn't want to provide coverage that's poorer than what the insured populations are getting. So we think all that legislation is positive. It creates more coverage. But if you look at, like California, for instance, and New York, those were 2 of our early -- the early states where we have lots of concentration. They just implemented mandates -- the insurance mandates to require coverage for the insured population. So we had concentrations well ahead of the mandates. So I don't think the mandates really affect anything. Yes, against the wall.

So given the triple digit growth, trying to look at the sales force, do you have them through the annual cycle [indiscernible]

Well, remember, a lot of our growth is driven by high retention rates. So -- and we know, Pete and I have been doing this for a long time with different types of sales forces that sales is a mathematics game, that you have to understand ramp-up times, average productivity. So we don't need to double the sales force, but we're smartly adding on to the sales force given what we think ramp-up times and productivity are to continue to grow at a very large high but sensible level. We are a service business, and we don't ever want to risk any diminution in service. So we -- and growth in the benefits business is a bit more complicated. It doesn't happen ratably through the course of the year. It all happens on -- firstly, it happens on one day, on January 1. Second, you wake up and you're X percent bigger than you were on December 31. And you can't allow any diminution of service, whether it's for your new customers, your old customers. So we've been lucky in that way -- it's not -- I wouldn't say we've been lucky. We've been -- we've managed to grow while maintaining service levels and actually improving service levels, and it was by design. So that's how we look at growth, that's how we look at the sales force. Yes?

Are you interested in countries beyond the U.S.?

So the question is, are we interested in countries beyond the U.S. So as you know, health care is a very local business, and certainly the way health care is funded is even more local. So we have very significant opportunities in the U.S. that we're pursuing. We are looking at some international extensions to help some of our U.S.-based customers provide coverage for some of their expat employees, who look at their U.S. colleagues and say, we want some of that also. But international markets are not currently a primary focus.

Sorry if this was asked. But you guys save, as you said, 20% [indiscernible] relative to the insurer's existing coverage protocol, why don't they just change their coverage protocol to cash [indiscernible]

Yes, it's important to note that it's not just the benefit plan design. It's not just the coverage protocols. It's the combination of things we do. And remember, the insurance companies have to go to their employers and say, we're actually managing your benefit and managing your expense. The way they do it is through all those kind of one-size-fits-all rules. We've taken a completely different approach in that we provide a comprehensive toolkit to our physicians. But retrospectively, we're looking at what the physicians do in near real-time with the data and making sure that they're utilizing best practices. The insurance companies don't have that mechanism to do that. So they really can't even change their coverage protocols because they have no way to manage physician behavior. They don't have the relationships with the docs to collect that data. They don't have the capabilities to actually assess that data and do anything with it. So everything we do is so different. And it's a combination of things we do that really generate the outcomes, that the insurance companies would have to fundamentally rethink how they approach managing care to create outcomes similar to ours. It's not as simple as changing the benefit plan design. Yes?

Do you prevent doctors in your network from learning how to utilize your toolkit and learn these best practices and then applying that to patients outside of your service? And will that close the gap in outcomes down the road?

Well, remember, there's a lot of things that drive the national average outcomes. It's the financial pressure that patients are under without our benefit. It's the fact that their care is either being funded by themselves and their carriers, and you saw the deficiencies in coverage. So the doctors are succumbing to the pressures that their patients and outside forces put upon them. We don't see any movement to change those outside forces. Patients are still under financial pressure if they don't have the Progyny benefit, and they're still making compromises in care every day. And we've been tracking outcomes. And the reality is the outcomes have not been improving nationally for the last 4 years that we've been looking at them.

We got time for 1 or 2 more.

Do you have any demographics on perhaps given the cash pay nature of the business -- market, what's the like typical income of patients seeking IVF? Because you obviously talked about some of them having to take out debt, but is that a common outcome or is that on a tail?

Yes, it's a very common outcome. An individual has to be prepared, to have a successful treatment, to spend between $50,000 and $75,000. Regardless of income level, that's a very high hurdle. We've had -- we -- when our benefit gets rolled out to a new employer, we've had engineers that make $200,000 a year in Silicon Valley send us e-mails that they're sitting at their desk crying because, they now have hoped to have a family because even though they have good jobs and make $200,000 a year, they had no chance of trying to fund an IVF treatment.

The other thing I would add is clinics generally have a financing office to give you an idea. And so that's how common it is. They're not unlike a car dealership, where they will have a financing office there at the clinic to make sure that your finances are set up, so that when you go through treatment that you can pay for it. So that is a good indication of how common it is that people on a cash basis go into some level of debt.

The example that I gave of Sara, and that's a really common example. People borrow money to make this happen. Yes. Last question.

[indiscernible] service provider sides like the IVF doctors, do you observe a trend that they all [indiscernible] or something like that.

I couldn't understand your question.

Okay. So most of the IVF doctors and practitioners, they do business individually. So do you observe a trend that comes together to form kind of a collaboration or become a...

Well, there's been a lot of acquisition activity in the provider space. A lot of providers are combining. So that is a trend that's happening. The doctors are combining and doctor network -- doctor networks are being created. None of those combinations will ever result in a competitor for us because you really have to have a national network to service national employers. They need to know that all their employees have access to care, and they have choice when they're seeking care. So those collaborations really don't impact us at all. Thank you, everybody.

Great. Thank you so much for your time today.