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

Thank you for coming to the session of the Bank of America Healthcare Conference. I'm Michael Cherny, Healthcare Technology & Distribution Analyst here at Bank of America. Much more importantly, though, we have the team from Progyny here. Pete Anevski, who's Chief Executive Officer, among multiple other roles he had filed previously; Mark Livingston, Chief Financial Officer; and Michael Sturmer, who is one of the newer joiners of the company, President of Progyny. So they prepared nothing, which is what I asked them to do. So we're in a common range of discussion.

But I guess, I mean, just given the timing, you reported earnings 24 hours ago, you put up another of your, what I call, consistent beat raises. Maybe just to level set, give everyone highlights of what really stood out from first quarter results on.

Sure. We reported earnings last night. We ended up having 50% top line growth. Overall EBITDA 87% growth. Had a real positive quarter from a cash flow perspective, normally Q1 for us as a quarter in cash flow is usually cash use. So a year ago, we had cash use of $11 million. We had a cash flow positive from operations of $21 million this quarter, all real positive things relative to what people generally watch and monitor for us. More importantly, we onboarded the record number of sales in the lives that we sold in 2022 selling season successfully. Last year -- this year sort of more traditional. Last year was unique where we had a significant number of clients coming on board throughout the year in terms of larger clients with -- what [Technical Difficulty] this year, materially all of our clients are now live that we sold in 2022, and that was also really positive. So overall, we're real pleased with all the activity relative to our financial performance.

And maybe let's just start there with the onboarding, which is the first update that we had since you got everyone on board and then I actually got some progress on them. So maybe talk about some of the early feedback. It's one of those interesting things that you're still adding such a material amount of new customers, new members every year as we go $1.2 million or so last year. So maybe give us some experiences, especially as you get deeper and deeper into cohorts and you continue to expand in terms of geography, in terms of types of customers you're adding, what some of that experience was like for the go-lives?

Sure. So the nice thing about it, as you continue to grow, as you continue to have more and more experience with every individual carrier that you're handling with, right? So the important part of the benefit is that we integrate for purposes of member responsibility with dozens of carriers, all the [ Blue Cross ] plus regional carriers throughout the country. And so the nice thing about that is as you can see to grow and have experience with them, integrating and implementing more clients each year becomes not that much harder incrementally even though the overall client growth seems we had 105 new logos that we added last year compared to last year's selling season compared to 85 in the selling season before, right? But all of that is now with the continued experience team that has more and more experience with every individual carrier and so you can implement those. So on top of that, we do a lot of work during open enrollment season with these clients to make sure that their members are as educated as possible to the extent that they are already aware that they have the need for the benefit, and we're going to start using it when the calendar turns and then the PCAs help those new members and guide them through the journey like we always do with everybody with every new member, even if they're with a new client or an existing client, they help guide them through the journey, guide them through taking advantage of the benefit that their company is offering. And all that was successful for us given selling season that we had.

Got it. We're almost certainly going to -- selling season comments, but I want to dive a little bit more in terms of the base business and particularly start on utilization. I think you walk into almost any presentation at this conference this week and there was some type of utilization question ask and your utilization is unique in the sense that it's very obviously condition-specific versus everything we see broader hospital med tech companies. So I mean, I guess, maybe give us an update on what you're seeing utilization right now. And if there are any lingering or lagging effects from COVID for anything else that's impacting what you think should be the base utilization rate?

Yes. So I'll start with the COVID thing first. It's definitely not COVID over, right? So COVID for us, relative to what we saw an impact on utilization, the last impact that we saw that was measurable for us was the end of Omicron, which was sort of the first half of Q1 2022, right? So anything that was lingering from that work itself out by probably the end of Q2, not Q3 of last year. So it's not that. What we are seeing is utilization getting stronger at started probably the back half of last year. Now it's not like hugely stronger, but it's incrementally stronger relative to what we were seeing sort of the 3 or 4 quarters before that. But it's enough that it's noticeable. And this year, in particular, utilization got stronger from what we were seeing in the first 6 weeks of the year, which is what we use to basically guide when we report year-end results and guide Q1 and the full year 2023 and strengthen the Evernorth since then through today, basically. So as we continue to sort of look out to Q2 and then put out guidance for the full year, it's based on what we're now seeing, which is a consistent strengthening of the utilization across the board. And if you think about it, it's consistent with what you're hearing in terms of incidence and prevalence around the condition. The condition is now 1 in 6 couples childbearing years suffer from infertility that's a world health organization that they just put out. The CDC says it's 1 in 5. Four years ago we went public, the stat was 1 in 8, right? So incidence and prevalence is growing in a significant way. And if you look at sort of the overall fertility rates in the U.S., natural fertility continues to decline when you break it apart 34 years and younger, where it's declining, 35 years and older is actually growing and been growing at a rate of 2%, 2-plus percent a year compounded over the last 10 years. And so that macro trend of people waiting longer and longer life to have a baby and the biological clock being real and therefore you're going to tend to suffer from infertility more as you get older is what's driving overall utilization to inch up. We sort of been seeing it over the years when you break down cohorts of clients. It's been the behavior going back to clients that started in 2016 and are still with us today. Utilization continues to inch up over time. And the biggest driver of that is the actual reality that people are waiting longer, longer to have the baby and therefore need, this is reproductive technology to do it.

Yes. I think I saw some stat recently. Often them is quoting like the average globally -- maybe finally got about 30 years old.

I think that's couple of years ago.

Last a couple of years ago, that thing new, but -- what is happening is -- yes. No, you're not wrong, but what is happening, which is more important is every year, the average age of people having a baby is getting older period, right? And that's not a U.S. phenomenon, that's a global phenomenon, but it's also happening in the U.S. And so there is a reality to -- the trend continues and if it continues without full coverage and help population of clients going to be real.

I think 2 important things I just adding color to that is when Pete says across the board he was talking about already, it doesn't matter what year the client started with us. It doesn't matter what the geography is. There really isn't any differentiation factor, they're all having strong utilization right now. And I think that speaks to where people's minds are at as it relates to the economy, as it relates to looming recessions or whatnot, they're still choosing now to build their families and aren't really deterred by it. And I think that's 1 of the important segments that we look at over the last 6 months of last year and now already into 4, 5 months of this year.

And I guess, too, is this something you said you've seen cohort wide because so much of the growth that I followed in the time since you've been public, has been moving in from the coast. It's changing the demographic dynamics and some employers seems like there's really no abatement and maybe there was some early spark from some of the early customers and how widespread their fertility services we use. But now it just seems like everything is consistent.

Yes. So from a utilization perspective, it's consistent what you're describing is the phenomenon of coverage. Coverage started with companies that were primarily East Coast, West Coast concentrated companies, they were a bit more forward thinking in terms of providing the benefit, right? And as time progressed, now we have employers all over the country, all over the Midwest, South, you name it, across industries. We started in 2 industries, 5 clients and 2 industries in 2016. We're now 379 or self-insured clients in over 40 industries, right? That's the part sort of ubiquitous in terms of people realizing it's a human benefit. It's not anything related to any 1 industry or another. It's specific relative to the need of the couple or the LGBTQ+ population overall in terms of them building their family. And then after that, the utilization itself continues to inch up sort of across the board regardless of what company you're part of, what industry you're part of, et cetera. We look at our cohorts as sales year cohorts, right? So across industries each sales year, we look at them independently, and every one of them over the years continues to inch up over time. They're not dramatic increases. They are a basis point increases like that, on average, basis point or 2. But the reality is that when you're 0.4 percent female utilization in Q1, for example, those 1 or 2 basis points matter.

And I guess along those lines, one of the other big questions I know is coming across everyone is the dynamics of macro conditions, whether 2 recessions, it looks no recession, not smart enough to figure it out. What are your clients telling you in terms of what they expect from a utilization perspective, first? Well, I want to get to the selling season employee rates after. But are they expecting any change in utilization because this is still in terms of -- until you serves as having a baby, on the one hand, it's something that even with great coverage, still it's a very expensive journey in general. And obviously, once you have a baby it maybe it's very expensive. Then the flip side is that to your point, though be, you get the [ harder tip ] scientifically become. So I guess, is it -- maybe it's too early, but what are your clients telling right now of what they expect to have their utilization be for their members, you've had that macro conditions at worse?

We're not hearing an expectation of the decline in utilization, because people are worried about the economy because people are worried about inflation, et cetera, sort of what Mark was alluding to a second ago. People realize there's a reality to the window they have and it's small of when they have the ability to build their family if they're in the age where they're going to use assisted reproductive technologies because each year, the reason why the CDC reports outcomes by age band, by year, 35-year-old outcome, 36-year-old outcomes, et cetera, because there is a reality to each year, your odds go down even with the help of a assisted reproductive technology. So when you're a couple and you realize that you're infertile and you need help, the last thing you do is worried about the current price and milk lack of a better term. And for go building your family is not what's happening. So that's why we've been seeing an increase in utilization, again, incrementally in small, but a steady increase in utilization since the middle of last year because the reality is that despite whatever concerns maybe somebody had in the first half of the year because there was an inflationary economy or it's already even a little earlier than that, they're not waiting, right? And so I think that's sort of what's happening. So there's nobody saying to us, they're expecting it to go down. Here's a nice thing though about utilization. We have a lot of new clients. We predict for our clients what we expect utilization is going to be when they go live, right? We're using pretty good at doing that. But every once in a while, as you may imagine, we're not perfect on it, right? So their clients, that rewards clients that are new disorders who have better than expected utilization, you would think they would be upset about it because it's going to cost them more than what we projected. They're stated, right? They're stated that they rolled out a benefit and that the need was, in fact, bigger than what they thought and employee retention is real and attracting talent is real. And so at the end of the day, they're not upset about it. They're happy about it. And a lot of them awards health system that are static because their utilization is, in fact, over-indexing with nurses, and they have -- they're struggling with the nursing population retaining nursing. And so it's another sort of data point that they're actually ecstatic about. So it's a funny thing where they're not looking for even given this economy and any concerns they might have overall in terms of the macroeconomic situation, they're not looking for the savings in the form of less utilization. They decided to roll out this benefit because it was a real need, and they're happy when they see the utilization.

I might come back to that dynamic of the penetration within the base, but you talked about health systems. So this is -- I want to make sure I hit on this. So it seems like the last 2 selling seasons, health system market has been 1 that you alluded to is having great strength and there's been a couple of notable statewide systems, a few children's hospitals light up the -- in terms of Hospital Association partnership. Maybe fill us in a bit about why you think you hit a breaking point on health systems and then building in what that importance is of that children's hospital partnership, hunting license, whatever turn you're going to use that really put a nice stamp of approval on the opportunity to grow.

I'll hit on it in a second, but there's a really important point about every industry. All of them sort of think about things definitely relative to being innovative in terms of benefits, right? Some industries are followers relative to other industries that are more leaders, right? As I said before, was -- has been a leader in innovative benefits, and this is no different. I was one of the first in terms of rolling this benefit out. After that, right, in every industry for us, whether it's health care or whether it's health systems or tech, whether it's oil and gas, whether it's you name it, once you get the first, then others follow fast. We have been highlighting health systems because think about it, they were slower to adopt. They've now been adopting, but their health systems. They're in health care, right? You would think it's something that they would be -- have already rolled out to their employees, and they're catching up, which is great. But it's just an example of how many more employers but even employers in health care are realizing that this is a very real medical necessity not a nice to have and are now covering it and the pace that is growing, but we presented at another conference earlier in the year and showed 3 or 4 different industries and show how once you penetrate in that first year, each year after that, you continue to grow pretty quickly in those industries. So that's why our overall growth has been what it's been. Last year, in our 2022 selling season, we sold them 30 of the 40 industries that we serve, right? So health care is no different. It's just something we've been highlighting so for the reasons that I said.

There's also still the competition for employees as well. And that's still a real thing even across industries. And health systems, in particular, have been impacted by that by nurses leaving for other professions. And so that's also driven the increase in benefits and then the interest in adding things like family building and particularly attracting and retaining importantly those populations.

And the nice thing about the health systems and in particular, the Children's Hospital Association endorsement is, they're sophisticated buyers, as you might imagine, a little bit more sophisticated than most others within health care. And so they're betting and their endorsement and they're adopting their benefit, adopting with Progyny, it means a lot relative to being, I think, 400 providers you can get.

Yes. I mean the Children's Hospital Association to me seems like such a logical partnership. If anything, they've seen what the work that you do [indiscernible] success perspective more so than like any other customer you'll touch. So with that as the backdrop, what are you expecting out of this? I guess how do you think about where you're being -- you're judging your own success on working with these other hospitals beyond the few that you started with.

It's really sort of no different than what we expect across the other 4 industries that we have. We expect the flywheel effect of other companies realizing, again, this is a medical necessity, and we expect the partnership to help us drive adoption faster within their employer consortium is the gist of it, but the details of the matter, so having them endorse you and having their partner hospitals, ask them sort of what they think and then sort of who they recommend is a big deal.