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

Great. Thanks, everyone, and welcome to this session of the BofA Virtual Healthcare Conference. I'm Michael Cherny, the health care tech and distribution analyst. More importantly, with us today, we have the senior management team from Progyny, David Schlanger, CEO; Mark Livingston, CFO.

So I think we're going to just keep this fairly informal and go through a bit of a fireside chat. But I don't know, David, if there's anything you want to highlight after last quarter's last week's, about last quarters strong results, anything that really stood out to you into the company?

Well, given kind of the external environment, I think the thing that stands out is that at least in the fertility industry, things have largely returned to normal with respect to kind of member utilization members getting back into treatment. Obviously, that feels good given that the pandemic is not over. But for couples struggling to have children, they understand the time sensitivity of fertility treatments and when they felt safe, got back into treatment. So again, at least for our industry, things are feeling very normal.

And maybe just starting there, the level set. When we had this conversation last year, clearly, your providers, the members you work with, your employer customers were in a complete utter period of uncertainty, not because of anything they did just because providers were literally asked to close. So if you think about the rebound utilization you'd seen over the all of 2020 and continuing into 2021, if you had to put a number on it, you said we were close to normal, but where do you think we sit right now? And I guess maybe alongside that, for the difference between that and 100%, what is the holdback in terms of the areas that you haven't seen that level of recovery towards a "normalized level".

Well, just remember, we talk about things that largely returned to normal. That's always against our expectations, right? We have a utilization-based model and utilization varies based upon the mix of customers we bring on and every year, we're bringing on a new -- a large bolus of new customers. So it's not an exact science. So it's always against expectations, but I would tell you that -- and again, the other element is we don't have visibility to the people who don't call us. So all we can do is judge what utilization is against expectations and look at kind of the sequential trends. And I would tell you that what we're seeing is, again, as I said at the beginning, utilization is largely normal. It would be logical to assume that there's maybe a small percentage of people that are still reluctant to go get treatment, and that could be for various reasons. Obviously, they may want to get vaccinated, they may not want to be pregnant while the pandemic is still going on. But again, versus expectations, utilization feels pretty normal. So there may be, again, a very small percentage, single-digit, low single-digit percentages, but again, it feels normal. And you can kind of see that utilization has sequentially ticked up a little bit in the first quarter from the fourth quarter, and that's even with the bolus of new customers. So we're pleased to see that. And we hope it continues as we all have visibility, we think, into the end of the pandemic and things getting back to normal.

Along this line, can you just remind us why utilization can't stay low for that long. You are the only fertility pure-play company in the market. And so that dynamic in place of why utilization has -- whatever puts and takes you have came back so fast, maybe versus some other condition states and why it still remains at that elevated level?

Sure. Well, I think it has a lot to do with the nature of infertility. If it starts with the fact that the biological clock is real and that every month, a woman waits to go through treatment, her quality and her quantity is declining. So although fertility treatments are not emergency treatments, there's a high level of time sensitivity. And those couples are aware that they have a higher likelihood of having special outcomes today than they do a year from now. So as soon as providers that they could get back into -- that they can open their practices and do it safely with safety protocols to keep both patients and staff safe through the pandemic, they reopened their doors. And as soon as they reopened their doors, patients started getting back into treatment. And we saw that last year and that at one point, when the practices were essentially closed our [ uptake ] was off 85%. And by the end of the second quarter, exiting kind of the second quarter at the end of June, we were well over kind of 90% versus expectations. So as soon as patients could, the vast majority of them got back into treatment because, again, they understand the time sensitivity of treatment.

And taking a step back, I want to level set just because you are a company that still is newish to the public markets, newish, I would say, to investors understanding the differential of the business model. And some of the things that have always stood out to me are the high-touch approach that you have throughout the pregnancy journey. Also some of the dynamics of where you sit within the benefit design. And so maybe from where you see it, aside from clearly the high-touch dynamics, what else do you think differentiates Progyny, in particular makes it easier plug-and-play type solution when an employer is deciding what type of fertility benefits to offer over time?

Well, there's kind of -- I think there's 2 parts of that question. The first is, we know that to carve benefit out of -- with a health plan. I think I make it easier for the -- you have to make it easier for the employers. So from an integration and implementation perspective, we've worked very hopefully, easy with very little effort on the clients part. So that -- that's the plug-and-play nature of what we do. There's not a lot of work to do on the employer side to make it happen. But why would they do it? Why is Progyny different? Well, the first thing they realize is that our outcomes are far different, far better than national averages. What that means to them is that they both save money because they have to fund fewer treatments. They save money because they have fewer high-risk pregnancies and preterm births. And they have healthier employees that are happier. But the real question is, how do we do that? How does Progyny generate outcomes that are so far superior to the national averages? And in fact, if you look at the past 5 years, we have continued to improve our clinical outcomes every year. And they're significantly better now than they were 5 years ago. The industry as a whole has basically stayed the same. There's been no improvement over 5 years. And what's really driving that? I think you mentioned one element of it. It starts with a benefit plan design that unlike a carrier plan design, which is focused on limiting access to services and controlling costs. Our plan design is all about incenting the right behaviors and generating the best outcomes. So it's providing patients and their physicians, the ability to make a customized treatment plan and do what's right for that particular patient, not bring a calculator into the exam room and make compromises in care and have access to all the science that's correlated with good outcomes. On top of that, we provide an extraordinarily high level, and you mentioned it before, a high-touch, patient care and support. So fertility journey is very complex. It's difficult emotionally, it's difficult medically. Each member gets assigned an expert fertility coach, if you will, that helps them through all those elements of their care, finding the right doctor, understanding the right treatments, making the right decisions, supporting them emotionally through the roller coaster that they're going through. And that's really differentiated that any care model that any health plan has, where it's kind of a one-and-done reach out to make sure everything is okay. The next element, which is really critical, is that we have a very unique network of physicians that we work with. It's virtually all the top physicians in the industry, many of whom don't work with other providers. And they work with us because of many of the things I mentioned, the plan design that allows patients to come in and access the right treatments that allows them to best physicians, utilize best practices. It's patients that have a fully funded and robust benefit. So there's no compromises in care. We make it really easy on administrative perspective, but it really goes beyond that and that it's not just us in our network, but it's how we work with the network. And that's really unique. There's an extensive data sharing with our network. Each of our network providers is required to give us their detailed treatment and outcomes data for every patient, and we collect that in near real time. We aggregate that data and share it back with our providers in quarterly clinic scorecards, where we work with our providers, so that they understand how they're doing, how they're doing versus their peers. We identify the issues and areas for improvement and work with them to improve. So it's an actively managed network using that data. And frankly, that data is another differentiator because it's not just that treatment data, but we're a very data-driven organization. Every decision we make is based on data. So all of those things combined, all those things together are really critical to generate the outcomes. And it's all of those things that are really attractive to an employer when they look at us versus the easy decision, which is just having your carrier turn on fertility coverage.

And the clinical outcomes, I'm very glad you touched on that because it's a very important component when you think about both the quality of life dynamics that come with better clinical outcomes as well as, obviously, the cost savings for an employer. So can you just go a little deeper into how you drive towards those clinical outcomes? And what are some of the differential factors that Progyny is able to help with and aid and push through, as it works so closely with your network providers to make sure that you're having healthier babies to your multiples, all of these other factors?

Sure. Well, again, it's a bunch of things we do, but it's kind of a joint effort to make sure that, again, physicians and patients are going down a pathway to generate the best outcomes, again, supported by benefit plan that allows it. But what you really want to happen is, you don't want to waste time on treatments that have a small likelihood of success just because there is, for instance, a health plan, clinical protocol that says you have to do it. So for instance, although we do have patients and not an insignificant number of patients that go through artificial insemination or IUI. It's less used in our book of business than elsewhere where it's required. And we get people into IVF quicker, where it's more appropriate. When they're in IVF, we incent them to do single-embryo transfers, only transfer single-embryo where appropriate and have those embryos genetically screened. And there's a bunch of other clinical procedures and diagnostics that patients can go through with us that are less common under a health plan model. But it's that type of science, and it's that type of treatment path that's going to generate the best outcomes. And if you look at something like single-embryo transfer, our single-embryo transfer rate is over 90%. In the overall industry, it's down around, I think, 60%. So significantly higher with us. So we're incenting the right behaviors. And it's really critical. A single embryo that's been genetically screened and that's transferred in an IVF transfer, we're generating a lot of birth rates that are 25% better than the national average. But even -- or equally as important, our multiple birth rate is 75% lower than the national average. So on kind of all those key clinical measures that both save employers money and make for healthier, happier employees that are that miss less work, that are more likely to return to work, we're really succeeding. But it's again, it's around setting expectations of our physicians, monitoring their behavior, supporting our patients to make those calls and sending them down to the right pathway.

Yes. I just want to highlight one part, David kind of alluded to earlier, taking the calculator out in the hand of the patient. I think it's really important when it comes to generating the very best outcomes is giving them, David -- as David said, the information and the understanding of what the most healthy course of treatment will be for them in conjunction with their doctor. But also to take the calculator and the financial pressure out of their hands to make decisions that are perhaps more desperate multiple-embryo transfers, et cetera, which just lead to those bad outcomes. And it's our benefit plan design that allows that -- again, in addition to information that allows them to make those better choices.

And that's a great point, Mark, because one of the things I've always found appealing of Progyny as well is the simplicity that you have to an employee with the smart cycle approach and with understanding the token-based dynamic of how the benefit works. And so can you just walk us through how an employer thinks about the best way to contract on that smart cycle component? And why employer A versus employee B might offer more smart cycles to their employees? What is that calculus that your employer customers are doing when going through that decision as part of the contracting?

Sure. I think -- listen, I think all employers want to do the right thing by their employees and support them so they can realize their dreams of filing a family. But budget always plays a part. And some employers are in a better position than others to provide a more robust benefit. So there's always a decision from an employer's perspective about how many smart cycles to fund. I mean how many attempts at pregnancy to fund. Most employers in our book of business prefer somewhere in the 2 to 3 smart cycle range, which means, if you kind of understand how our various procedures work, that's going to provide 2 to 3 full attempts at pregnancy. So 2 full frozen IVF cycles with the transfers all the embryology work. What our employers are going to do, particularly those that have the budget ability, they tend to look at trends over time and say, with 3 smart cycles, for instance, how many of our employees are actually capping out their coverage? You're not -- not heading to the outcome. So -- and some of those when we talk to them, will add another cycle because they really don't want anybody capping out on coverage before they have a successful pregnancy. But again, it always kind of depends on the budget constraints of that employer, whether they can afford to do that. We have kind of some unique plan designs where it could be 2 smart cycles and then a bonus smart cycle. So an employee goes through 2 full attempts and isn't pregnant. Then the employer will give them 1 more try. So we try to actually work with our employers, be flexible on our benefit plan design, so they -- so that they can, within their budget constraints, accomplish their goal of helping all their employees that want to get pregnant, get pregnant.

And a really important part of our sales process is the targeted outcome analyses that we prepare for them. So we, over the years now, have pulled together a tremendous amount of data on what utilization would look like for similarly situated work or demographically similar companies. And so we sort of know what the number of smart cycles it should normally take for people to get to that level. And we give them a really good sense of what that cost would be. Of course, we also show them what the savings would be from each different combination of choices that they have, whether it's smart cycles or adding egg freezing or what have you, we demonstrate what that savings is for them. During the sales process, and of course, once they are a client of ours, we meet with them quarterly. And each year, we go through the data. So we sort of say what it's going to be beforehand and then we prove it to them quarter-by-quarter and thereafter.

Got it. And that brings up a transition that I know is a key focus point, which is your continued new business momentum. Last year was an interesting year in the sense that you added a very healthy number of new customers and new employers, yet you noted that you had what I've essentially termed high level business development discussions in the sense that the pandemic uncertainty created an opportunity for you to educate despite the fact that a lot of employers just weren't making any changes to benefit designs. And so as you think about the kickoff process in the early stages of the 2021 -- or I guess 2022 selling season, ongoing now. What is some of the feedback you're getting from the field in terms of, in particular, employer appetite towards pursuing new benefits, especially one where there is an ROI component that you've been able to prove out?

Well, I would tell you that the nicest thing about this, as I said before, when we were talking about kind of member utilization, it's really starting to feel normal. It's feeling normal with respect to our discussions with employers and benefit teams and prospective customers. I think everybody sees the light at the end of this dark and long COVID tunnel and are making plans and running their businesses for a post-COVID world. And that -- and then we're seeing that in the conversations we're having with employers, the number of conversations, the momentum of those conversations, that employers are getting back to business and making normal benefits decisions and really working hard to make sure that they are optimizing their benefits dollars and bringing the best benefit programs to their employees, unlike last year, where it was a scramble just to put things in place that can help employees work remotely and get through the pandemic. So what we're seeing early is a lot of positive sales momentum. We always have some early season sales wins at this point in the selling season. Those have been positive, and we really feel like we're getting back to where we should be. Last year, we were pleased with the efforts of the sales team, given the external environment. But I think, we said before that our expectation here is that we're going to grow the absolute number of sales every year versus the prior year. And that -- a key measure of that is the number of new lives we bring on. And if you take last year out of the equation and look back to what we sold in 2019 through 2020, that was 50-some-odd customers and 700-some-odd-thousand lives. We would expect to get back on the trajectory of beating those numbers this year. And we have staffed and goaled the sales team to make that happen. So we view last year as an anomaly, again, happy with the progress we made. But that would have been -- if it wasn't a COVID year, disappointing year for us because it didn't keep us on that trajectory of continuing to grow the absolute dollar amount of our sales each year. So again, positive sales environment, good activity. I spend a lot of time talking to our senior sales executives, and they are feeling busy but very kind of encouraged and enthusiastic.

And just along those lines, you've had also a nice expansion growth over the years. I feel like the heavy component of your early customers were very tech heavy, and now you have, I believe, and please correct me if I'm wrong, 25 different industries represented in terms of your book of business. Are you seeing any differences in dynamics in terms of where those prospects are most frequently coming from, especially given that the pandemic recovery has been very different based on the industry that your prospects are sitting at?

So still very, very diversified. Tech continues to play a role, but it's financial services, it's consumer packaged goods, energy, I'm trying to think, media, pharmaceuticals, big retailers, it's kind of everything. It's across the board, old economy and new economy, very well represented. And again, that feels more [ wholesome ] because as you correctly pointed out, prior to COVID, we've done a really good job of diversifying our client base, both with respect to industry, geography, kind of types of employees, whether they're highly compensated or less highly compensated. And we're seeing that continue this year in the diversity of types of employers. Again, health systems, school districts, it doesn't -- you don't have to be a tech company for Progyny to work for you financially. Because as you mentioned, there is an ROI in this investment versus spending the money through your carrier. And again, all employers are recognizing that covering fertility is no longer a perk or a nice to have. It's really becoming an essential part of a benefits package. Fertility as a disease, it's recognized as such by the AMA and WHO. And companies understand DEI is important, and it starts with those basic equity in the workforce is about vendor equity. And by not covering fertility, you're discriminating against your female workforce. And companies are realizing that is not a position they want to be in. So all those trends are very positive for us. And again, those trends don't just apply to employers in the tech industry. All employers are competing for top talent. All employers are trying to differentiate themselves with respect to the robustness of their benefit package. So again, we're seeing really good action in both the old and the new economy, and we expect that to continue.

And just thinking along those lines, when you think about the bifurcation, diversification of the customer base, obviously, to meet your targets. Having a jumbo or an elephant customer to here clearly helps. And we'll never know in a given year, absent a press release, which I know has not been typically the company's MO. We just look at total employers, total lives and trying to figure out what an average size is. For all we know, there could be one employer that's half of those lives. With that being said, and when you think about the fact that for a large chunk of the prospects you're going after, this is probably an extra year of sales cycle. Does that position you any differently to potentially create that education for a jumbo or an elephant prospect, given the fact that they tend, in general, to have a longer tail sales cycle for anything that they're trying to do?

Yes. I mean, certainly, there are many large accounts that it takes a few years to actually get them in a position where they can prioritize fertility and make a decision. As -- you're correct, they often have more complex sales processes, and [ women ] processes. One of the things we are seeing this year is more large employer prospects than last year. And you would expect that because larger employers have more complex workforces and have more complex issues to deal with during the COVID crisis. So our average employer size was a bit smaller last year with respect to new customers we brought on. But we are seeing a lot of big companies this year we engage. So that also feels pretty -- a pretty positive trend on the early season sales activity.

Yes. Mike, One thing I'd add is we -- each -- when we first came out public, we provided a table of customers with sort of a live ranges -- covered live ranges. We updated that each year. This quarter, we actually added in our 10-Q that same table so that you can get a sense of what the change is between year-end and this new group of customers that we brought on or, how they sort of map out between different tier sizes. So I just I would encourage people to take a look at that. It should be helpful.

It's a good point. We don't -- unless required, we don't disclose the customers' names. But you can -- you will get a sense on to types of -- the sizes of customers we added by looking at that size cohort table that's in our public filings.

Definitely helpful, and we always appreciate any color you can provide like that. So it's definitely helpful for anyone online. Commenting a bit, you had an interesting new partnership announcement with CVS that you talked about on the earnings call. Can you maybe just go a little deeper in terms of the way the 2 of you can play-off each other and make this a truly mutually beneficial relationship?

Sure. So CVS has a point solution platform with the offer to their PBM customers or self-insured employers that use them for PBM services, access to a fully vetted set of point solutions. So CVS goes in there, they get the solutions for everything from security, all the way through quality and outcomes, et cetera. They create a simplified contracting process and that those solutions can be purchased via your CVS master services agreement with a statement of the 3-party statement of work. And what -- from our perspective, it provides us access to all the CVS self-insured PBM customers with CVS' good -- sealed approval, if you will. So they provide the access to simplified contracting. And again, that sealed approval, which is really critical. The nice thing is that it's early stages, but CVS and we are very enthusiastic and -- and the joint selling activities have kind of commenced. And there's a lot of -- and there's nice momentum. From CVS' perspective, what they're really trying to do is be more than just PBM, but be able to say to their customers. We're also providing you access to beyond your biggest point solution, which is your pharmacy point solution, access to other point solutions, that will be beneficial to you from your overall benefit package. And that we've gone out as an organization and done all the homework for you. So it helps them with their customer relationships. It helps us gain access to customers. With respect to customers that may have been reluctant to maybe take on our pharmacy services because they were worried about how CVS would react. That issue goes away because that's all built into the program where CVS is helping us sell a fully integrated program with pharmacy. So it's a win-win for both of us. And again, we're very proud of the fact that CVS surveyed the marketplace they identified us as the best solution. We're the only fertility solution on their platform. And it's -- again, it's early stages, so it's hard to judge, at this point in the selling season, what impact that's going to have. But we're encouraged at this point.

And maybe using this as a microcosm. What I found interesting about it, to your point is, it's a validated approach, but also a value approach where they're now pursuing a product that competes or maybe substitute, I'd say, maybe a better word in terms of fertility offerings. And so as you think about your expansion in terms of payor partnerships, payor relationships. How do you think that the average payor balances that dynamic of having a fertility family planning offering of some sort versus a much more targeted focus fertility planning offering that they would get by partnering with Progyny?

Well, I think the term average payor is a difficult term in our world because all payors view their ability to do these types of things differently. If you look at kind of regional plans, Blue Cross plans, et cetera, that are regional in nature, I think they are more realistic in that they can't do what we do and that they're not going to try and that they're going to be looking to best-in-class solutions to bring to their customers. There are certain national players that think they can do everything and believe they can do it well. And that would be less likely to want to access a third-party point solution like ours. Now those big national players, we've seen real -- no real substantive activity for them to make their programs better. But at least they -- it seems like they talk about it and feel that their employer customers shouldn't be carving out fertility. It's a much different story when you look at regional plans. So we still believe that payors can be channel partners of ours, but we don't believe that all payors would want to be, and I think you have to look at each payor individually and determine kind of what their motivations are and what their aspirations are and what they think that they can do well.

Perfect. Well, I can keep going, but I see a whole host of timing issues with the fact that I see all zeros on my screen, so we'll stop it there. David, Mark, thank you so much for the time today. Congratulations on the recent progress you've made and look forward to gearing further updates on -- going forward.

Great. Thanks, Mike.

Thanks, Mike. Good seeing you.

Take care.

Take care, all.