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

Good afternoon. My name is Lisa Gill, and I am the health care technology and distribution analyst of JPMorgan. This afternoon, I'm filling in for my colleague, Annie Samuel, who all of you know recently had a baby. I am incredibly happy to have with us this afternoon, Progyny, a name she really likes and one that she could completely attest to. With me this afternoon is CEO, David Schlanger; President and COO, Peter Anevski; as well as CFO, Mark Livingston. David's going to kick it off with a presentation, and then we're going to come back and bring Pete and Mark back for the Q&A. So David, thanks so much for joining us. David, you're actually on mute.

Here we go. Thanks, Lisa, for that introduction, and thank you, everybody, for joining us today. As Lisa said, I'm going to walk you through our presentation, and afterwards, Pete and Mark will join for a Q&A, immediately following. So if you turn to Slide 2 of your presentations, I'm going to pause briefly so you can note the legal disclaimer regarding any forward-looking statements or non-GAAP financial measures that I may discuss today. So now moving on to Slide 3. I want to start the Progyny overview at the highest level. And what we try to accomplish at Progyny and what our mission is, is that we want to help people realize their dreams of parenthood through a healthy, timely and supported fertility journey. Because the desire to have children is really one of the things that's common to all of us, this is a mission that everyone at Progyny rallies around, that it's a strong foundation to the very special culture that we have built among our employees. Turning now to Slide 4. So how do we accomplish this mission? Well, we go about it by offering to self-insured employers a fully carved-out fertility benefit solution for their employees. Now our solution was created because a group of influential employers were dissatisfied with the fertility coverage that they were getting from their health carriers and they were looking for a better solution. This slide tries to capture the problems that employers with a carrier-based plan experience. And the first thing is that carriers have outdated plan designs that generate poor clinical outcomes. Second, as a result of those outcomes, employees going through IVF experience high levels of multiple births. And their employers are the ones that bear the significant medical costs associated with high-risk pregnancies and premature births. Third, the carrier solutions create inequities in coverage and exclusions of entire employee populations. Employees in higher-cost geographies have less access to care, and typical carrier rules around medical necessity exclude the LGBTQ+ population and single mothers by choice, who, by definition, need fertility treatments to realize their family-building goals. And finally, carrier-based plans have really negative workplace impacts. In addition to increased levels of employee absenteeism, poor presenteeism, a lack of a comprehensive fertility benefit puts employers at a disadvantage when it comes to attracting and retaining key talent, particularly among millennial employees who frequently cite family-building benefits as being the most important health benefits to them. I just mentioned that employees are asking for more robust fertility coverage. To understand why, let's take a look at the infertility market. So I'm now on Slide 5. Beginning on the left side of this slide, you see that infertility is a highly prevalent condition affecting 1 out of 8 couples, which means this is a more common disease than many other chronic health conditions like asthma and diabetes. And the prevalence of infertility is only growing because people are increasingly choosing to defer family building to later in life. And unfortunately, the biological clock is real. A woman's egg quality and quantity declines with age. So as a result, more and more couples are having difficulty getting pregnant naturally. In addition, the treatment for infertility is expensive, it's complicated and the journey for most patients can be grueling, both physically and emotionally. It's because of these factors that employees are asking their employees for coverage -- employers for coverage and want support in their efforts to build their families. Employers are listening to them and we've seen that company-sponsored coverage is increasing. I'm now in the middle of the slide. And you can see that although just a few years ago, only 30% of employers in the U.S. were providing some type of fertility coverage and, in many cases, that wasn't a particularly robust benefit, by the beginning of '21, that percentage had increased to approximately 50%. And recent research shows that this trend is expected to continue, with approximately 2/3 of employers expected to provide fertility coverage by 2022. Now turning to the right side of the slide. The current market for infertility treatments is approximately $7 billion based on the most recently available CDC data. This market's been growing at a compound annual growth rate of 10% over the last 5 years. However, we estimate that the potential market is likely at least twice that size, given that approximately half the people who need care are unable to pursue it because they lack the necessary financial resources. Turning to Slide 6. You can see how Progyny has taken advantage of these favorable industry trends. Here, you can see a significant -- the significant growth we've achieved in both the number of clients and covered lives we managed since launching our fertility benefit solution in 2016 with just 5 initial clients. Today, we have over 180 clients, which represents just a tiny percentage of the approximately 8,000 large self-insured employers that make up our addressable market. Those 180 clients represent approximately 2.7 million covered lives. As the bar charts on the right show, our growth has been continual over these past 5 years, with a significant amount of growth over the past 12 months despite the backdrop of the COVID pandemic. In fact, our most recent selling season was quite strong, where we added 45 new clients to 400,000 new covered lives. Equally important, over the last 5 years, we've retained virtually 100% of our client base, including during a very difficult year in 2020, and none of those clients have downsized their program with us, further validating the value we provide to both our employer clients and their members. Moving over to Slide 7 now. Here you can see the financial scale we've achieved as well as the leverageability of our business model and infrastructure. The chart on the left shows our revenue growth, which through 2020, has been at a compounded annual rate of nearly 100% based on the midpoint of our most recent 2020 full year guidance that we provided in November. Given the success of our most recent selling season, we expect that we'll continue to grow revenue at a significant rate in 2021. If we again use the midpoint of our recent guidance, we expect our revenue will grow at a rate of at least 53% in 2021 as compared to 2020. The right section of this slide shows how we achieved profitability at a very early stage in our evolution and how that profitability has expanded significantly over time, reflecting the scalable infrastructure we use to build the business as well as the discipline we've applied in managing the business. In our most recent quarter, we achieved an 18.5% adjusted EBITDA margin on incremental revenue. We believe this is a good indicator of where the business can move to in the future in terms of profitability. We're also highly efficient from a capital perspective, so our EBITDA has a high rate of conversion to operating cash flow. Moving on to Slide 8. Here, you see the names of a sample of the clients that we work with today. Many of our clients are blue-chip brands and leaders in their respective industries. While our earliest customers tended to be tech companies that are known as leaders in employee benefits, our clients today represent over 25 different industries from both the old and new economy, including financial services, consumer packaged goods, pharmaceuticals, health care, professional services, transportation, even a few school districts. This diversity highlights how our fertility benefit solution resonates with all types of customers, regardless of the industry, geography or size. We've also heard from a number of our employer customers regarding the importance of the Progyny program to their diversity, equity and inclusion initiatives and the important role that plays in how they value the relationship with Progyny. Turning now to Slide 9. Earlier, I briefly discussed the shortcomings in the fertility coverage offered by the traditional managed care companies. I'd like to provide a bit more detail and color to those shortcomings in order to help you understand the uniqueness of our solution. Before Progyny, an employer who wanted to include fertility coverage as part of their health plan had really just 1 option, which was to go to their carrier and have them structure a program. The carrier structured their approach to covering fertility, however, in the same way that they do for all of the other thousands of diseases and conditions that they manage. The focus is to control cost by limiting utilization of services rather than focusing on achieving optimal outcomes. To do this, they offer restrictive plan designs that limit utilization of services through mechanisms such as lifetime dollar maximums. They then combine that dollar cap with other restrictions such as mandated step therapies. Often, the carriers simply do not drive any coverage at all for the latest scientific procedures and technologies, such as genetically screening embryos. In addition, many of the best and most successful reproductive endocrinologists have determined that it's just too frustrating to work with the carriers and have instead opted out of their networks. As a result, patients with carrier coverage often don't have in-network access to many of the top-performing clinics. Additionally, while the carriers manage access to treatments, PBMs separately manage access to costly fertility medications. This separation often creates significant patient abrasions because PBMs typically take 10 to 14 days to approve and deliver specialty medications. Fertility treatment, however, is time-sensitive and scheduled around a women's menstrual cycle, so a 14-day delay means the patient has to wait an additional month to be treated. And for someone who's struggling to conceive, that delay can really be unbearable. Lastly, despite fertility being a physically and emotionally arduous experience for most -- fertility treatments being a physically and emotionally arduous experience for most patients, the carriers provide virtually no patient education or support, which means that patients are on their own to figure out the best course of treatment and have no resources to help them cope with the emotional challenges they face. The net result of all of this is that the carriers' programs generate poor outcomes in both getting patients pregnant as well as in creating healthy singleton pregnancies that successfully go to term. These poor outcomes are significantly costly to both patients and their employers. The low live birth rates force women to endure additional rounds of treatment and for employers and employees to pay for them. The high rates of multiple births are dangerous for both mom and baby, and the related medical costs for the employer are significant, and they also create P&L volatility for the employer because of the possibility of high-cost medical claims. We've all heard the stories of the million-dollar NICU babies. You should understand that preterm births are significant public health issue, costing employers $40 billion annually. In the U.S., multiple births are the #1 cause of preterm births and IVF is the #1 cause of multiple births. As you can see, employers have a strong financial incentive to look for a better solution to address this. Now that you understand the problem, Slide 10 begins to show you what we do to create a better solution. Although Progyny's fertility benefits are fully carved out from the carrier's management, we integrate within the overall health plan that the carrier manages for the employer. This means that while members can only receive fertility care through Progyny, their fertility expenditures with Progyny are coordinated with all of the rest of their medical expenses when determining member responsibility as it relates to things like co-pays, deductibles and accumulation towards annual out-of-pocket maximums. We have integration solutions in place with all the large national health insurance companies, and we've created a process whereby the integration for each new employer client is simple and seamless. It's important to note that these carrier integrations enable our benefit to be provided to employees on a pretax basis, meaning fertility is treated no differently than any other medical care the employee receives. In contrast to some of the VC-backed startups who are typically providing reimbursement-based programs, this is a real significant differentiating factor because the value of those reimbursements the employee receives for fertility treatments is treated as taxable wages on their W-2s. Slide 11 highlights the 4 primary things we do uniquely at Progyny to create both a superior patient experience and to drive industry-leading outcomes. The first thing is that we have a benefit plan design that's focused on optimizing outcomes as opposed to limiting utilization of services. Our program provides our members with access to all-inclusive comprehensive treatment bundles. These bundles ensure that patients never have to worry about running out of coverage midway through a treatment. We have no treatment mandates or acquired step therapies in our plan design, empowering physicians to get patients to the most effective care first and to access all the latest diagnostics and procedures necessary to create a customized treatment plan. Patients and their physicians never have to make compromises in care. Also, by denominating our benefits in what we call Smart Cycles or attempts at care rather than dollars, our benefit is equitable in that all employees have equal access to care regardless of where they live or how complex their case is. Because of our approach to fertility benefits, doctors want to be part of the Progyny network, and our members have access to many of the leading fertility specialists in the country who won't work with the carriers. Our physician network and how we actively manage it is the second unique element of the Progyny program. Third, we've integrated the management of fertility medications with the management of fertility treatments. By creating a single authorization process and providing next-day delivery of medications, we've eliminated the risk of someone missing a cycle because they couldn't get their drugs in a timely manner. And finally, we provide an extraordinarily high level of patient support and guidance so that patients understand the treatment options they have and have the courage to make those decisions that will generate the best outcomes. Turning now to Slide 12. On the left side of this slide, you see the 4 pillars of our unique approach to fertility management that I just reviewed. One thing I'd like to point out is that our members appreciate the benefits of our program. As a result, we generate industry-leading NPS scores, a 78 for our medical solution and an 80 for our pharmacy solution. Just to put those scores in perspective, most health plans have NPS scores of between 0 and 15. Members and their employers also benefit from our superior clinical outcomes as compared to the national averages. Turning to the middle and right side of this slide, Progyny patients have a 52% higher single embryo transfer rate, demonstrating that our program encourages patients to pursue a safe and effective path to pregnancy. As a result, we have a multiple birth rate 80% lower than the national average. Our approach also results in a 14% higher pregnancy rate and a 30% lower miscarriage rate, which yields a 23% higher live birth rate. And you should be aware that Progyny is the only company with a 5-year history of achieving proven, documented outcomes that far exceed national averages. Slide 13 shows how these superior outcomes generate measurable value for our clients, including meaningful overall program cost savings compared to a carrier-based program. It starts on the left with lower overall treatment costs. With our higher live birth rates, clients need to fund fewer rounds of fertility treatments for their employees to have a child. Fewer rounds of treatment drives additional savings because less of the costly fertility medications, which can average $8,000 per cycle or more, are needed as well. Also with regards to fertility medication, we provide our clients with an average of 20% unit cost savings because we've negotiated our own direct purchase arrangements with the manufacturers. And by working with our network physicians, we've also eliminated a lot of the excess dispensing that's become common in the fertility industry. And as a result, we're saving our clients an additional 8% on their total medication cost for our waste management program. Moving on to the right side of this slide, our significantly improved multiple birth rate means that our clients have lower medical costs associated with high-risk pregnancies, preterm births and NICU stays that are associated with low birth rate preterm babies. Lastly, our higher live birth rates and lower number of high-risk pregnancies translate to lower absenteeism because of fewer disruptive physician visits. In addition, fewer multiple births also means a faster return to work and fewer employees that drop out of the workforce entirely. I'll now spend a couple of minutes going into a bit more detail on some of the things that we do uniquely to achieve these outcomes. Turning to Slide 14. It starts with our data-driven approach and the fact that data informs all key decision-making functions across our company. This slide gives an overview of some of the data elements we capture. We've built the largest fertility database in the industry. And what you see here are just a handful of the hundreds of different data elements that we actively collect and monitor. We use that data in many ways across our business, ranging from provider contracting and reporting, detailed client reporting on program utilization and value, benefit plan design and coverage decisions, optimization of member experience and even for things like internal workforce management and staffing metrics. Turning to Slide 15. I mentioned earlier how unique the Progyny network is. To start, our network of 800 physicians is the most comprehensive network of fertility specialists in the country and includes many of the most successful practices, those well-known and highly sought-after clinics that patients really want to be able to go to for treatment. While Progyny doctors aren't under a contractual obligation to work exclusively with us, what's really interesting about our network is that many doctors in our network -- for many doctors in our network, Progyny has become somewhat exclusive by choice. As a result, approximately 30% of the docs in our network either won't work with the carriers at all or are in-network with only 1 other carrier. These are the doctors with thriving cash pay practices, and they simply don't want to deal with the hassles that come with participating with the carriers. However, they choose to work with us because they know our members are educated and supported by our PCAs, and they have the comprehensive coverage that allows physicians to practice their best medicine. But it's important to understand that it's not just who's in our network. Unlike traditional managed care companies, we actively manage our network. And what does that really mean? What it means is that it starts with each of our docs is required to continually provide us with detailed outcome and treatment data for all of their Progyny patients. We then use that data to create quarterly clinic scorecards, reporting back to the doctors on hundreds of data points, so they can see not only how they're doing but how they compare to the rest of our network. This process gives us an opportunity to work with each physician office to improve on any required areas and, in rare cases, intervene if more [ serious ] exist. This continual dialogue with our physicians regarding their practices data is critical in generating our superior outcomes, but it also creates a very unique collaborative relationship between ourselves and the clinics. Clinics aren't getting these insights anywhere else. Because of this collaborative relationship, we find many of the docs in our network are willing to work with us in other ways, such as helping us market our services, creating content for our members and participating in our medical advisory board. And in my 30 years in health care, I've really never seen a managed care company with collaborative relationships with its physician network like we have at Progyny, and that's something that we're really proud of. Turning to Slide 16. As I said earlier, the Progyny patient experience is truly unique. We've designed our patient experience based on our belief that an educated and supported patient makes better decisions and has better outcomes. Every Progyny member gets assigned a dedicated Patient Care Advocate or PCA to act as a fertility coach. On average, a member will interact with her PCA more than 15 times during the course of her care. Those interactions can be for anything from finding the best doctor to meet the member-specific needs, to getting an appointment schedule all the way through providing clinical education about treatment options. But surrounding all of this guidance is the emotional support the PCA provides to help that member navigate through a journey that can often be very difficult and stressful. Our PCAs often develop very personal relationships with their members. And the feedback we receive from members on a daily basis reflects that. Those interactions are what drive our leading NPS scores. Our PCAs are highly experienced in fertility and undergo a rigorous training program at Progyny before they speak to any members. PCAs are often former clinical workers, including RNs, embryologists and andrologists. Further reinforcing the personal care we offer members, PCAs are trained to support the unique needs of a diverse member population, whether those members are LGBTQ+, single moms by choice or ethnic minorities. Slide 17 highlights a particularly important aspect in our personal relationship with our members. This past year, I think we've all collectively become much more aware of racial inequalities that exist not only in the workplace but across society more broadly. And COVID has shown that those inequalities exist across health care as well, and fertility is really no exception. So for example, as compared with other ethnicities, black women are twice as likely to experience infertility but only half is likely to receive care. Something uniquely built into the Progyny's DNA is our sensitivity to these issues and our efforts to help address these inequalities. We ensure that every member receives personalized culturally competent care. Beyond our PCA training to help support cultural and racial diversity, our comprehensive Smart Cycle plan design allows physicians the flexibility needed to provide the specific treatments that are unique to each patient's particular needs. For example, we cover carrier screening for monogenetic disorders that may be unique to certain populations like sickle cell. And where carrier tests are positive, we provide genetic testing of embryos to ensure that monogenetic disorders aren't passed on. On the right side of this slide, you see a quote from one of the doctors in our network, sharing her view that Progyny's Smart Cycle has all but removed class and race bias in fertility care, giving patients equal access to the treatments they need. Turning to Slide 18. I've really already -- I've already covered most of what's here, but it summarizes all the areas of our business that would be extremely difficult for someone else to replicate. You will often speak of competitive moats. Here, we're showing our competitive brick wall and all the elements that make up that wall. It starts with the very significant lead over the competition we've built over the past 5 years. We have the largest and most complete fertility database and have developed substantial insights and expertise about fertility. It would take any competitor many years just to catch up to where we are today. And by then, we'll have advanced our knowledge even further. We don't see any of our competitors, whether it's the carriers or the VC-backed startups you may hear about, using outcomes to demonstrate their value. And that's because none of them have the infrastructure, the relationships or the ability to even measure their program outcomes, let alone manage or positively influence those outcomes. So we believe we have a significant competitive advantage that has proven to be quite sustainable. I'll conclude on Slide 19 by discussing the multiple levers we have for significant growth into the future. Starting on the lower left, our 180 clients today represent a very small percentage of the over 8,000 large self-insured employers in the U.S., and we have significant room to grow just within this core market. Second, many of our clients have continued to expand their workforce as they successfully grow their own businesses. Our existing clients grew in aggregate by approximately 100,000 lives in 2020 despite the significant disruptions caused by the COVID pandemic. Because of our utilization-based model, as our employees grow, we grow too. We've also seen organic growth by upselling our customers. There are clients who don't initially select the pharmacy benefit, for example, or start their program at a lower overall level of Smart Cycle coverage. Historically, we've had opportunities to expand our relationships with those clients by selling additional services to them or enhancing their level of Smart Cycle benefit. We're also pursuing new types of customers beyond those large self-insured employers, including organizations like universities, school systems, municipal government employees and labor unions. In 2020, for example, we added our second municipal school system. Lastly, there are new services and adjacencies that could both add stickiness to our program as well as bring incremental revenue and profitability. We have a very strong balance sheet. And while we aren't announcing anything specific today, you should expect that we'll continue to invest in our business by identifying opportunities that leverage our assets and expertise and expand our addressable market. So that concludes my presentation, and I'd like to thank everyone for joining us. Lisa, I believe we're ready to move on to the breakout session, and I'll invite Pete and Mark now join for the Q&A.

Okay. Thank you, David. Very informative presentation. I appreciate that. So first, one of the main things obviously at this conference is going to be the vaccine. And I think all of us are so excited around the vaccine finally coming to the marketplace. Just the first question would be about utilization. And so what you saw in 2020 and what your embedded 2020 expectations are around utilization. And how much of that is dependent on us getting a vaccine?

So Pete, you want to talk about utilization and where things sit and what we're seeing?

Yes. I'll just give a little bit of history first. When the pandemic first hit and we got stay-at-home orders back in the middle of March, we were down roughly 85% versus normal utilization levels. That crept back up pretty quickly. By the end of June, we were already at roughly 90% utilization levels as the industry reopened and put in safety protocols in place to ensure that both their staff and members were going to feel safe and be safe relative to exposure to COVID. And that sort of continued to inch up throughout the year. Expectations are that we'll continue with that at the utilization levels that we saw exiting the year. And we don't have any additional expectations relative to the vaccine. Our expectation is simply that people will not be afraid. Members would not be afraid to utilize the service even with COVID out there, consistent with what we've seen really since the end of June through year-end. And so no real concern, sort of material concern around getting pregnant during this period of time. And the expectation is that will continue at the normal levels.

So just sticking a little bit with the COVID theme. On the most recent earnings call, you spoke of adding 45 new clients in the selling season. How did this selling season look different than in years past? My first guess would be that you're not meeting with people maybe in person like you've done in the past. Also, how are you thinking about converting the not-nows in your pipeline, which would be my next question?

Sure. So I think you correctly identified it. One of the biggest changes was everything was done remotely. And I think we've all adjusted that throughout our lives, both personal and professional. But I think there was something bigger at work in that from most large companies' perspectives, they were dealing with issues they never had to deal with, which is remote workforces and how -- what that means and how does it impact their businesses. So what we saw certainly, and you started referring to it in the not-nows, is that larger employers that have complex workforces, so multiple locations, employees spread across the country, they really -- many of them were making the call to just not make any benefits changes because it was really all hands on deck in the HR and benefits offices to just manage its new reality of remote work. So we've always heard not-nows from certain prospective clients because they had maybe had other priorities, and they wanted to delay consideration of a fertility benefit because maybe they were changing their carrier that year. But this past year brought a new category of not-nows. And that was, "Hey, we're busy dealing with COVID and we can't now make any other benefit changes." So what that means is that for many companies that we've gone fairly far into the pipeline, into the sales process with, they became pipeline accounts for this selling season. So we entered this selling season with a more robust and well-developed pipeline than would had otherwise been the case because we heard more not-nows. And as a result of those not-nows, we didn't -- we did not sell the number of accounts that we would have expected to last year in a normal year, although in our view, still a very strong year with 45 new client adds. But again, as we look forward and with the vaccine coming and light at the end of the tunnel and most companies having adjusted to working from home, and again, the COVID thing from many companies' perspectives hasn't really affected their business. They're still thriving. So we're starting to feel that decision making this year may get more back to normal. But as we all know, the COVID situation is pretty fluid, and we're hoping it continues to look better. But you wouldn't know that from the infection numbers we're seeing every day or the fatality numbers. But it feels like decision making is starting to get back to normal, but I think that's -- and hopefully, that will continue throughout the selling season.

The percentage of new pharmacy sign-ups went up pretty substantially in 2020. What's resonating with the new clients? And where do you see that penetration going over time? And are you starting to see a [ one-for-one ] where people get fertility benefits as well as the pharmacy benefits as well?

I'm sorry, Lisa. I missed the first part of your question. Can you just repeat it for [indiscernible].

Yes, new pharmacy sign-ups, so the new pharmacy sign-ups went up pretty substantially in 2020. So I just want to try to understand what's resonating with the client. What do you think penetration could be over time? And do you anticipate in the future where you would have both people sign up for the fertility benefit as well as the pharmacy benefit, that they go hand-in-hand at some point?

Yes. Pete, you want to talk about this?

Yes, yes. So it's effectively already happening, Lisa. So if you think about the last 3 sales years, 2018, '19 and '20, the percentage of new clients that took the pharmacy benefit were 68% in the 2018 sales year, 75% in the 2019 sales year, 83% in the 2020 sales year, right? So it's already growing and it's close to 1:1 from a new client perspective. The existing clients that originally didn't have the benefit because we didn't even have it out there, but in the first sales year, we launched it late, continue to be upsold and continue to add the benefit little by little each year. And we'll continue that process with those. But from the perspective of the new clients, it's already as close to sort of 1:1 already, which is really nice. And I think the messaging is the same. It's just a function of, I think, the realization that when we present all the benefits of doing both pharmacy and the medical benefit together, it is -- it continues to resonate and improve and who knows whether or not that's a function of we're in the marketplace longer and so certain clients maybe wanting to see us operate the Rx benefit longer before they have confidence in it, and that percentage is growing. We don't exactly know because we're happy when they say yes. But nonetheless, the trend is positive. And I think now, 3 years in a row, continuing to grow, I think it's -- you could look at it as a definite trend.

One of the comments, Dave, that you just made was the fact that your customer base remains strong. And I think about like the financial services industry, we're still strong. Our numbers are still good. It feels like COVID was a virus that really hit some underserved populations versus generally who you would be serving. But it is a question that we get around the macro environment around unemployment, uncertainty, the pushoff of an employer around the benefit. What is your anticipation as we move into 2021 around that economic uncertainty? Does that have an impact on your business?

Well, what we've seen, and it's unfortunate on the wrong side of this line is that the COVID situation has really created a tale of 2 economies, almost. If you're a small business owner, if you're a restaurant owner, if you're in the travel business, the hospitality business, this has been a devastating situation for you. And obviously, those aren't the kind of companies that are spending money on additional benefits. But for a significant percentage of the economy, things are progressing along just fine. And you mentioned many of those areas, whether it's financial services or the pharmaceutical industry, the tech industry, they're doing great. And as a result, I think their decision making is kind of normal and they continue to hire. We saw that in our embedded employee customer base last year. The aggregate employment across -- or aggregate membership across our customer base last year actually grew by 100,000 individuals during the course of the year. And that's really just new hiring. So I mean, there were a couple of small acquisitions, but it was mostly new hiring. So our companies that were strong last year, we believe they will continue to be strong going forward. And the reality is the new companies we brought on that were making benefits decisions to add us last year, by definition, are not those companies that were suffering from the dramatic economic impacts of COVID. So we feel our customer base is really well positioned, and therefore, we're well positioned to continue to see some of that organic growth because of new hiring at our customers.

I just want to dig in a little bit on the competitive landscape. So I heard your comments in your presentation that traditionally, the competitor was the large carrier, one of the large insurance companies that you made a comment that there's a number of VC startups that are out in the marketplace today. You have a very compelling offering, and I think you really laid out some of the differentiation. But how do you think about this competitive landscape shifting and changing over time? Is this going to shift from where primarily, you were competing against the large insurer to these new startups? And can you talk about what some of those new startups have in the marketplace that perhaps could be differentiated? And so you have the ability to adapt to some of those new offerings that they have.

Sure. I mean, look, we -- myself, Pete and Mark, we've been around managing businesses for a long time, and part of that responsibility is keeping a close eye on what your competitors are doing. And obviously, the success and momentum we've had in the market is going to attract people to this industry. And we've seen some of that. So there are some startups. For the most part, those startups offer a very different service than what we do. And I alluded to it in the presentation. They have what's called the reimbursement program, where really an employee of a company that utilizes their services can go to any fertility doctor. And then they may have a network that provides some level of discount. But really, what the program is it provides reimbursement to expenses that employee incurs at a fertility doctor. And the problem is those reimbursements are taxable to the employee, unlike what we do, which has no tax consequence to the employee. But more importantly, those businesses are structured so they don't really have a benefit plan design they're managing, and they don't have a network of physicians that they're managing their behavior by collecting the extensive data, analyzing that data and working with physicians to improve. So what you don't see any of those VC-backed startups doing and you don't see the carriers doing it either is talking about outcomes. Like, "Hey, we've generated these outcomes and we manage the entire process to create those outcomes." So currently, their programs are far different. Again, they're reimbursement-based programs. When we look at our selling activity, when we look at when we don't win business, I would tell you that we're not -- we're doing extraordinarily well against those VC-backed startups when we sell head-to-head. When employers choose to use their carrier, it's really just choosing the path of least resistance where they tell themselves that, "I want to do the right thing by my employees and I want to give them some coverage, but I don't really care that much whether it's the best coverage that they're -- that they get or the -- or making the best use of my dollars." And more and more, we are having success telling employers and the benefits managers and employers that, that's really the wrong way to look at it. It shouldn't be the path of least resistance. It's very easy to work with us. I talked in the presentation about how seamless our integration is. It's really your obligation as a benefits manager to get -- to do 2 things, spend the dollars you have available to you most efficiently and effectively and spend those dollars to improve employee health. And we can provide both of those elements. So again, historically, 2/3 of our customers had carrier coverage before and they've left the carrier for us. And the reason they've done that is all the problems I talked about in the prepared remarks, they see those every day.

We have to bring Mark into the conversation before this call ends. We only have a couple of minutes left here, Mark. So I was looking through Annie's question just probably to find a question here. So you expect to expand your margins to high teens over time. Can you walk through the drivers of the margin expansion? I -- also, something that really stuck out to me was David's comment around your EBITDA conversion to cash flow. So maybe if you could just discuss those 2 things, the margin and then the EBITDA conversion and how high it is.

Yes, sure. So we haven't actually given any long-term margin guidance. We've pointed to our margin on incremental revenues. Even just in this last quarter, we were about 18.5%, so -- on incremental revenues. One of the things I think I'd also point out when you look at it is we obviously had the step-up in costs and particularly in G&A around now being a public company. We've just sort of lapped that, now having been public just a little bit more than a year. So that will factor out. But yes, coming back to it, we see leverage in every line of the P&L. In cost of services, we -- given the volume that we've been able to generate, so for example, on the Rx side, we have existing agreements already that take advantage of the fact that we're pushing more in there. So our costs to deliver continue to come down, again, through some of those relationships. And we continue to look at them and explore new ways of using the networks to drive our costs down there. We also significantly lever the cost of our care management service teams, so the PCAs that David was describing in his prepared remarks. We see significant leverage across those teams as we grow the 50-some-odd percent that we have each year. When you look at sales and marketing, most of our costs are front-end loaded. So within the first year or 2, that's where the -- primarily the cost for customer acquisitions come into play. And again, considering that we're nearly 100% retention, you see that leverage show up quarter after quarter. And then on the G&A side, as I said, now that we're -- we've lapped past our IPO year, you'll see G&A continue to be levered as we grow. And Pete likes to say often, "If you don't know how to do that, then you don't know what you're doing." So we'll see that as we go forward. And then as far as conversion to cash goes, the model is a utilization-based model. So when services are utilized, we pay for them and bill for them concurrently. And so there's a little bit of an arbitrage of days between payments and receipts but not a lot. So there's -- the vast majority of what you're seeing go through the P&L is realized in cash fairly quickly. So yes, we've had strong operating cash flows quarter after quarter. I think last quarter, we announced, again, record cash flows. And there's a little bit of seasonality to it as we enter new year's. But yes, as you look year after year, we're pretty solid in that conversion.

Great. I think we're out of time here. I want to thank you all today for participating in the JPMorgan 39th Annual JPMorgan Healthcare Conference. If anybody has any questions, by all means, please feel [indiscernible] to reach out to my team or to Jamie Hart from Progyny. Thanks again, guys. We appreciate it.

Thanks, Lisa.

Thanks.