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

Good afternoon, everybody, and welcome to the Progyny session. I'm Bob Jones. I cover health care services broadly here at Goldman. Very excited to have Progyny with us today, a leading fertility benefits manager here in the U.S. I'm joined by the company, by David Schlanger, CEO; and Pete Anevski, President and CFO. So David, I thought maybe just for starters before we dive into some specific questions, I thought maybe it'd be a good opportunity for you just to give a brief overview of Progyny's offering in the fertility space. And maybe, again, just at a high level, we'll get into some of the specifics later of how the benefit differs from the traditional fertility benefit offered from the insurer carriers.

Yes, sure. So well, at the highest level, what we do is we help people to have kids, and the way we do that is by offering to large self-insured employers a fully insured -- a fully carved-out benefit for their employees. With respect to how it differs from the carriers, I think there's kind of probably 3 or 4 kind of key categories. The first is if you look at benefit plan design. Carrier benefit plan designs are typically focused on limiting costs and doing that by kind of controlling access to services or limiting access to services. So in fertility, that may mean a dollar-denominated benefit with a lifetime cap. It means all kinds of step therapies and protocols that limit access to services. They may not cover some expensive tests. Progyny, instead of trying to limit cost by limiting access to services, we're -- our benefit plan design is really focused on outcomes. So it's very comprehensive. It's not denominated in dollars. It's denominated in cycles of care, which lets an employee focus not on their calculator and how much dollars they have left but know that they and their doctor can customize a treatment plan based on that employee's unique needs, access all the services necessary, and the employee never worries about running out of coverage mid treatment as fertility treatments are pretty expensive. So the doctor and the employee can really just focus on best outcomes and customizing care. So our approach to benefit plan design is very different. We're able to do that benefit plan design because of our approach to the network. Without our ability to actively manage and monitor our network, it would be hard to have a benefit plan design because -- like we do because employers would be worried about how we kind of monitor and ensure that doctors are only using their dollars in the most appropriate way. So when it comes to kind of building and maintaining the network, first is we have a very unique network. We have 800 providers, over half of the doctors in the country, but we're very fortunate to have many of the best providers in the country. 30% of our network doesn't broadly take ensure carrier coverage, and we work with them in a very unique way and a very collaborative way. One of the things we do collaboratively with them is we collect real-time outcomes data on all of our patients and real-time treatment data. That allows us to really understand what's going on in the clinics. We create this very detailed quarterly clinic scorecards, and we work with the clinics and collaborate with them and use all that data to really help them improve, make sure our members are receiving the best care and best practices and those clinics are generating the best outcomes. The data also lets us to intervene in case any of our doctors are not following protocols, the ASRM protocols, et cetera. So also -- so the second kind of pillar beyond the benefit plan design is the network. The network is much different. It's managed much differently. So that's the second area of differentiation. The third area is that fertility treatments are very rigorous for individuals to go through. It's a very emotional time. Women and their partners are worried whether they're going to actually have a successful outcome. It's difficult medically. It involves a few weeks of self-administered injections, a couple of surgical procedures. And the treatments are complicated. It needs to be very much customized for the unique patient situation. Pete and I come from WebMD, where we have -- where we'd really developed the belief that an educated support to patient makes a better patient and makes better outcomes. So we spend a lot of time and effort really supporting our patients with extensive member services, and that involves -- each member gets assigned a dedicated patient care advocate that interacts with them on average 15 times during the course of their treatment, really develops a very close relationship and provides an extensive amount of clinical guidance and support, emotional guidance and support. And it allows patients to not just know the right thing to do but have the courage to do that, to go -- to pursue that course of treatment, which isn't always so easy. So the third kind of thing that makes us very different is the extensive level of patient support we provide. The next thing is that we manage both the medications and treatments. The medication regimen is both very expensive, complicated but integral to a successful fertility outcome. And with carriers, the carriers manage access for the medication. The PBMs manage access to the -- the carriers manage access and treatments. The PBMs, they manage access to the medication. By dividing them up, it creates all kinds of patient operations, in addition to the fact that the employers are spending more money on the medication than they need to. But by managing them together, you can really create a very holistic patient experience around the whole treatment episode and have a much better patient experience, better outcomes, while at the same time, saving the employer money. As a result of all those things that we do very different from the carriers, our outcomes are also very different from the carriers. Our live birth rate is 26% better than carriers. Our multiple birth rate is 80% lower than the carriers. So we're really able to both improve employee health with better outcomes, but also those outcomes allow our employer customers to save money. So at a really high level, that's what we do differently and have those kind of key categories. But we really have turned the managed care model on its head and just do things very differently from the carriers because we have a luxury of just managing one disease state, unlike the carriers where they have a very tough task of managing thousands of different health conditions and health issues. So I think at a high level, that's what we do differently.

No, David, that's a super helpful overview, and you definitely touched on a few topics that we wanted to dig into. But I guess maybe top of mind, obviously, for everyone is the current situation related to COVID. Clearly, it's created challenges across health care in general, at an industry level, but also within fertility treatments as well. So I'm just -- I just wanted to start there with some of the new ASRM guidelines and changes to stay-at-home orders. Clinics clearly are reopening in different parts of the country. I know during your last earnings call, you said clinics in your network should be providing their full range of services. I think your expectation was by the end of the second quarter. I just wanted to get a real-time update. How are those things tracking? I know it's very fluid. But how is the kind of reopening and people being able to get back into their fertility treatments tracking relative to the last update you guys provided?

Sure. Well, I would say that the level of patient activity is greatly enhanced, but I'm going to throw this one over to Pete so he can kind of give you some more granular detail on what's been happening.

Yes. So what we talked about on our earnings call is all the clinics were in the process of reopening for all of their services and plan to do so by, let's call it, mid- to end of May. What we talked about for the end of the quarter was that, combined with all the safety protocols they had put in place. And so to the extent that they had put safety protocols in place to mitigate the risk of COVID, it was then being able to scale up their operations with those safety protocols and do that responsibly over a period of time. And so their expectations were that, that was going to take at least for the end of the quarter for them to sort of have that operationalized to make sure they're doing it in a responsible way but at the same time be able to operate at scale, if you will, with the overlay of those new safety protocols. And they've been doing that so we've been seeing that ramp up that we talked about continue, and we haven't had any challenges relative to any of our members getting appointments and being able to continue on their journey of family building, utilizing facility services. And so far, what we see relative to the network is that we're pleased with what they see in terms of what they put in place and their ability to scale up.

Got it. Got it. And I know you've talked a lot about and even in your opening remarks. David, you mentioned the PCA is really being a key differentiator in Progyny's offering. Just given the high-touch nature of what they do, has there been any impact on their ability to engage with members given some of the restrictions related to COVID?

Yes. Go ahead, Pete. Why don't you keep going on this one?

I'm sorry. You broke up. So can you say that again?

Just around the PCAs, just given the high-touch nature of what they do and how integral they are in your offering, just wondering if there was any restrictions or impact from COVID that maybe made their engagement different than normal?

No, absolutely not. So the good thing was the company was already set up to have a virtual workforce. And so with COVID hit, our ability to operate really seamlessly amid COVID, we were able to do that in a secure -- in a HIPAA-secured environment and be able to continue to operate and provide the level of service that we needed to do. Now where we had to modify things was interact with all the clinical network and be able to understand sort of what's happening around the country to be able to convey that during the disruption and then the transition, and we've been doing that. But in terms of being able to provide the PCA service and the high-touch service that we do, we've been able to do that really with no degradation of service. We track NPS scores. We track quality scores. We track all sorts of metrics and KPIs relative to that service, and we've had no decline whatsoever during this period.

Got it. Got it. I guess one of the other areas that comes up intuitively, given the situation is just around capacity. And I know you've talked a bit about different cohorts of folks out there seeking fertility treatment. I guess where do we stand at this point with the provider network, assuming that it sounds like things are starting to come back? You could argue in fertility and other areas. That could be a bolus of folks returning to these types of medical settings. Where do you stand today from a capacity standpoint? And how would you have us think about the different cohorts of individuals out there, both members and nonmembers seeking fertility treatment?

Yes. So David, I'll take this one. As it relates to capacity, the way to think about it is this, right, and this is sort of the feedback we're getting, again, from the network, from the providers of clinics around the country. They sort of expect, from their perspective, patients to come back in 3 ways, if you will. First, for those that have carrier coverage. Second, for those that our cash pay. The industry is still primarily cash pay relative to those utilizing facility treatments. And third, are those that -- particularly on the East and West Coast, where the clinic see a high volume of medical tourism, either from Europe or from Asia, those that utilize facility services in the U.S. will be sort of the third wave, if you will. And so there's inherent capacity as it relates to our members utilizing the service because of the buckets of patients that the clinics view in coming back in different ways. And so from that perspective, we have -- and as I mentioned before, we have not yet seen an issue related to capacity. I think it's a function of, again, the clinics allowing the capacity based on getting used to the protocols that they had put in place and so when they'll become sort of, if you will, at full capacity with the new protocols. And they're doing a lot of things around that area, including extended hours, staggered hours, working on the weekends, et cetera, that they normally didn't do a lot of. And so whatever they can do to address and meet the needs of patients, they're doing. But that's the way to sort of think about capacity. And obviously, different pieces of those are going to impact different parts of the country to the extent that certain parts of the country have more coverage than less to the extent that certain parts of the country have more medical tourism and not, et cetera. It's going to be different impacts, but that's the way to think about it on an overall level.

So it sounds like capacity might not be as big of a gating factor. And so obviously, members' ability or desire to get back in to return to treatment is another dimension to this. Any data points? I know you mentioned some in your last earnings release. Any kind of leading indicators that you would point to, to kind of frame how interested or willing folks are going to get back into the actual treatment centers?

So there's no numeric data points I can give you. I can only repeat the comments we made during the call. At our low point, volumes were at 15% of what they were earlier in the quarter, if you will, premass stay-at-home orders around the country, pre-ASRM guidelines, et cetera. And so when we got to the trough, if you will, we were at 15% of the normal levels that we were at. By the middle of April, we saw that come back sequentially week after week in double digits and was continuing still. Now again, not at double-digit rates anymore but was continuing when we did our earnings release, which is why we put out the limited guidance that we were able to put out relative to what we were seeing for Q2. The good news is the return, if you will, continues. And I think as you pointed out, it's going to continue at different rates in different parts of the country based on what combination of what the states you're doing and a combination of sort of what mindset is of folks. But still, in our opinion, it's coming back at a rate more of a V-shaped like rate than other parts of the economy that were as impacted as facility was during the disruption as it relates to COVID.

Got it. Got it. I guess maybe one other statistic I know you've shared is just around penetration, so of the individuals that have access to the benefit, where the penetration rate stands. I think the last update you gave was late March. So I guess maybe 2-part question. One is just has that penetration changed as the restrictions have eased across the country? And then probably more importantly and more broadly, where can that penetration go? And what are some of the things that Progyny is doing in order to drive more utilization of the benefit for those who have access to it?

The biggest driver around our utilization is a function of demographics at any individual company, right? And then obviously, take them over to Progyny. And overall, the mix, the collective mix of all of our clients drive that utilization rate. If you think about it this way, you think about -- there's a couple of factors that are going to drive that utilization rate. One is the percent of employees any employer has that are in childbearing age and looking to have a baby, right? And so some of the newer economy companies like tech companies and maybe media companies, et cetera, are going to have a higher percentage of younger employees than sort of older economy, old telecom, old energy companies, large food distributors, you name it. And so that's going to impact the utilization rate more so than sort of many other factors, right? The second factor is household income. And that's sort of in line with sort of just decision-making that people make relative to even building a family, and household income could impact those types of decisions. But overall, household income is a variable on top of it, but it's mostly the percent of employees that are in those years where they're looking to build a family is going to impact that. We provide large toolkit that we provide to all of our employers, and it's all about the culture and sort of what they want to do relative to communicating to their employees that the Progyny benefit exists. But one important thing to note is that Progyny is not an option, if you will, within their medical benefit. To the extent that an employee starts pursuing their family building journey and then realizes that they need the help of facility services even if they went to the employer's carrier, that carrier would tell them they're not covered for facility under that carrier, they would send them to Progyny. So even to the extent that an employee wasn't aware that they had the benefit and the learned that they needed the help of facility services and facility treatments in order to build their family, they would then be routed to Progyny. Progyny is not an option. It's the only option under their health plan at that employer for all Progyny's clients.

Yes. So it -- just to add one thing, Bob. It's an important point. We don't control utilization. It's driven by demographics. And to the extent someone needs to have -- wants to have a child and can't do it naturally, they're going to find us. So utilization is very much a factor of the mix of our customers.

So it's not so much patient engagement tools or strategies as much as they experience when they have the benefits?

Is the experience -- and employers have all different tactics about having to make sure their employees find it, but those that needed to find it.

Got it. Got it. No, I think that makes sense. I'm sure one of the things that was a result of the COVID disruption is individuals having to either postpone or cancel treatments potentially mid-cycle. How easily is it for those individuals to restart? Was this a big portion of your population? And if they do have to restart from the beginning, how does that play out relative to the benefit offered?

The -- yes, the way -- as you might expect and as you're alluding to, the rate of cancellation in March was significantly higher than we would normally see during any normal period of time. Cycles do get canceled for medical reasons generally. But to the extent that the -- that COVID was out there, we did see that rate of cancellation spiked. Now that cancellation also spiked very early in the cycle. And so to the extent that, that happened, the member doesn't utilize any of their cycles, if you will, under the plan and on the benefit. So it's very easy for them to reengaged and start their treatment. Just reschedule with the clinic of their choice, their work with their PCA, reschedule with the clinic of their choice and go back on their journey of building their family. And that's sort of a normal process anyways within the facilities to the extent that cycle gets canceled, but it just happened at a little bit of a higher rate because of what was going on and really only in March.

But as far as what the offering is to that individual, it's not like they've used up some of it and don't have as much left. Or does it work or when they...

Yes, you're absolutely right. So they used up none of it relative to the way the offering works, so to the extent that a client -- that their employer may have purchased 3 cycles, for example, as part of their overall benefit. So the way to think about it in fact was 3 attempts at utilizing fertility to build their family. None of those cycles are burned with a cancel cycle. Those -- only a partial cycle would be burned if they were well into the cycle. And again, for medical reasons, that cycle had to be canceled, and it would be partial. But in the instance that we're talking about here, none of them were burned relative to those early cancellations that I talked about under the offer.

Okay. I got it. I guess maybe just one other one that we get a lot of questions on thinking about different consumer-directed benefits, either point solutions or broadly from carriers or even from PBMs in this environment. It's made for a fairly interesting selling season, if you will. Just maybe with a shake of your macro picture, people working from home. There's been some anecdotes about the sales cycle within this particular selling season being more challenging for obvious reasons. Could you talk a little bit about what you're seeing as far as your sales cycle? How have you adjusted to the new environment? And as you think about the pipeline, does execution on that pipeline, in your mind, look much different than a normal year?

Yes. So it is obviously an interesting selling season. The one thing about our sales team is that they always did a lot of remote selling because it was always a very effective way to sell. So yes, they certainly had in-person meetings with 10 conferences, which don't exist in this selling season, but there was always a lot of remote meetings and as part of it, so they're actually comfortable doing that. So that's not that different to selling season. What's also not that different to the selling season is kind of the cadence of sales, which is from kind of March through July, you're in your selling season, so we're still kind of in the middle of selling season. And then later in the summer and through early fall, you start hearing decisions. And that's the same, and that's going to be the same this year. What's different this year is that, obviously, a couple of things. You have to be very sensitive to who you go sell to. You don't want to be tone-deaf. So we're not showing up the travel and hospitality companies trying to convince them to bring on a new benefit or to even change their existing benefit if they have fertility coverage because they're extremely distracted and dealing with other issues. So we've focused our sales team's efforts more on companies and industries that are better positioned vis-à-vis the recent kind of COVID outbreak. Also focusing on companies that already have some level of fertility coverage if they can because the cost savings of our program become even more important in a more rocky economic environment. So historically, 2/3 of the new customers we bring on have some level of coverage before and 1/3 don't. So on a normal sales year, we always believe that they're both good candidates. This year, it's not like -- it's not that we're not thinking about companies that have no benefit, but if these salespeople can talk to a company that already has the benefit in an industry that's doing okay, we think there's a higher likelihood of sale again because of the cost savings element. So a little bit of a different focus from the sales team. I would tell you that the sales team has done a really nice job of creating opportunities and discussions. They're processing things through the pipeline. We're kind of controlling what we can control right now, which is their activity and supporting them from a selling perspective. Decisions are going to happen starting again in late summer through the fall. It's hard to tell right now what the environment is going to be in a couple of months and how COVID is going to affect decision-making, but I think we all know that there's some level of distraction this year, and there's always distractions in the benefit world. It could be that the company is changing their carrier or their PBM. So we have a history of kind of hearing, hey, look, we love the program, but not now, come back next year. And we may hear a few more of those this year because of COVID because even companies that are well positioned are managing new issues, managing remote workforces, how do we get people back in the office safely, et cetera. But having said that, the reality is at this point in the year, we always have some early sales decisions from carryover accounts that we started marketing to last year. And even this year, we've had some of those carry some of those early sales decisions that have been positive, probably consistent with what we would have expected and what we've seen in prior years. And even a few of those have happened since the being at the heart of the pandemic. So there are companies out there that can make decisions and make the call to bring on a new benefit. But again, it's too early in the sales season to say those early decisions are directionally -- have any more directional meeting other than -- it's kind of what we would expect to see in a normal year is a small number of early decisions. And again, we'll know better fully how COVID may or may not have impacted sales efforts, again, kind of late summer, early fall. So that one thing about when decisions are made really hasn't changed.

Okay. No. So I think that makes a ton of sense. And I guess just to push a little further, David, though. I mean do you think -- I know it's hard to say where we sit today in the selling season. But do you think the refocusing on more likely type of accounts will be enough to potentially offset those types of accounts where this probably just isn't the right year to get in there and sell them the benefit?

Yes. Obviously, very hard to tell you. This is an unprecedented situation. The distraction at some companies is real. So -- but again, very hard to tell when all said and done when you kind of sift through all the accounts that you talked to during that year and the post mortem on happened with each one, what's ultimately going to come into play. The last 2 weeks, we've seen dramatic change kind of in the economy and what people's expectations are. So I don't want to hazard a guess what is going to happen when companies start making decisions in a few months' time.

That's fair. That's fair. I guess switching gears a little bit. I thought one of the interesting offerings outside the core fertility benefit was the pharmacy benefit. And so I guess maybe just for starters, it seems to make a ton of sense on the surface. But could you maybe just share any key points on where you do get pushback from clients who maybe don't adopt the pharmacy benefit? And then you've had a lot of success here. So maybe on the flip side, what are some of the key reasons that you hear from clients who do ultimately end up adopting the pharmacy benefit?

Sure. We can go up for a little bit more. I know we're at the end of our time, but I don't know if that creates an issue for you. We can sort of go on for a few more minutes if you'd like.

Yes. No, I think we might have a few minutes.

Okay. So I thought it was 5:10. But Pete, you want to talk about pharmacy a little bit?

Yes. So there is no reason why that -- one reason, in fact a better term from our perspective, why people don't take the pharmacy benefit today. You wonder why all of them aren't taking it, right? Let's talk about the benefits first. It's everything from an integrated benefit that makes the experience of a complicated treatment journey a lot easier when you have one single authorization and everything is coordinated as opposed to having a separate PBM dealing with the drugs and doing separate medical determinations, et cetera, which for many instances causes missed cycles, right? Fertility treatment has to be coordinated with a women's menstrual cycle. And to the extent that any of the protocols around the PBM, which are separate from the medical benefit, cause a delay in getting approval on the drugs. That causes missed cycles, the #1 problem we heard when David and I took Progyny over. So then -- and then on top of that, we're able to provide significant savings vis-à-vis the current offerings that are out there, mostly because, as David alluded to before, we're managing one vertical. And to the extent that we're managing one vertical, we're able to take advantage of a different level of rebates with some of the larger manufacturers versus those that have to balance out an overall portfolio across different therapeutic categories. For the most part, it's usually timing of whether or not those who don't take the benefit, the pharmacy benefit right away, ultimately take it down the road, and that's what we've been seeing, both from the existing clients as well as from new clients. And it's really a function of having separate stakeholders. Usually most companies who manage their PBM have separate stakeholders that manage the PBM separate from their medical benefit. And so it's just easier to navigate the company's internal protocols and politics in getting the benefit approved as opposed to getting it approved both for the medical as well as for the pharmacy side. And that's really the most common reason which is why we continue to -- if they don't take the benefit in the first year that they take the medical benefit, we get upsells down the road. It's pretty common for companies to try out the medical benefit and take the pharmacy benefit in the second year or whether it's the second year or on the year after that, and that's generally been the cadence to what's been happening. But the majority of company's last year's sales, for example, of the 57 clients that we signed up last year during the sales season, 75% of those took the pharmacy benefit, slightly higher than the year before when it was in the 2018 sales year for clients that went live in 2019. It was 67% of those that we sold took the pharmacy benefit. So it continues to gain -- get traction and slightly higher percentage in the first year. But ultimately, we believe the majority of all of our clients will ultimately take the pharmacy benefit. It's just a matter of when.

I guess just a quick follow-up on that, and then I just had one bigger picture, one before we wrap up. I guess just on the follow-up to that, I know having filed the PBMs for a while, they definitely like to keep the entire pharmacy offering under their umbrella. Is there any risk or pushback that you've seen from the PBM side as far as trying not to let this part of the drug benefit get carved out? Or is this something that either, A, dictated by the employer or maybe just in the grand scheme of the entire drug benefit just too small to matter for the kind of legacy PBM provider?

Look, I think you're right in that the PBM certainly aren't jumping up and down in excitement when we take it and carve it out. But it is the employer -- it is all the benefits that we described in detail around the program and how we manage the program that differentiate us, right, as a starting point. And so that's why the employer is supportive of doing it. And so then it's the employer's decision, and the PBMs ultimately support it. Now part of it is what you said, which is that fertility as a category isn't the biggest category on the planet. And therefore, is it worth it for them as were to create a lot more noise around it than they do besides the normal resistance to fight it with their employer clients? And the answer is, so far, it hasn't been. So although some resistance in the grand scheme of things when we go through with the employer, all the reasons why it's better for the member and ultimately better for the employer to have it integrated. It's pretty compelling. And even when -- for some pretty large clients that we have, the resistance wasn't small. It was pretty big. Ultimately, the employer expressed their desire, and it was supported by everyone involved.

Got it. Got it. And I guess just the last one on capital deployment and reinvestment. Maybe just if you could give us a sense of where you see the most opportunity for capital deployment and/or reinvestment. It sounds like a fairly robust offering today for what you're going after. Are there any other elements or components of the offering that you would want to add on?

Well, it's certainly nice to have the capital so that as we see opportunities, we can kind of go through that buy/build partner analysis and we have the capital to pursue any of those. We've talked about certain M&A opportunities in the past, both vertical and horizontal. And clearly, having the capital for that is a luxury for us and a really nice position to be in. So what we do not -- we were able to -- we were in a good position. The business generates cash that we could continue to grow the business and invest in the business with the cash that the business was generating. So the IPO for us was an opportunity, obviously, to create a marketing event for the company, elevate the stature of the company and give us access to capital for more strategic moves like M&A and things like that. So we're really thinking in that direction. And again, we've talked previously about the types of things we would look at. Vertically, there are opportunities to bring in in-house services that we're currently outsourcing. The pharmacy would be a good example of that pharmacy dispensing. And horizontally, there's a much more longitudinal women's reproductive health journey with other elements of it that we could play in, whether it's return-to-work programs, whether it's managing high-risk pregnancies, whether it's taking a more active role in supporting women that are going through reproductive health issues and have associated mental health issues surrounding that. So those are all the things -- those are some of the things we're looking at. But obviously, having the capital to get into them is, again, a good position for us all to be in.

Yes. No, it certainly seems like a good position to be in. With that, we're up on time, but I did want to thank David and Pete for their time today. Really interesting story here with Progyny, and I want to thank everybody who joined us today either via Zoom or on the phone. So let's leave it there. But thanks so much, gentlemen. Really appreciate it.

Thanks, Bob.

Thank you as well.