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

Good morning, everyone, and welcome to the JPMorgan Healthcare Conference. My name is Annie Samuel, and I cover health care technology and distribution here at JPMorgan. We're excited to kick off Women's Health Day with Progyny. We've got a full team here today. We've got CEO, Peter Anevski; CFO, Mark Livingston; President, Michael Sturmer; and Chief Medical Officer, Dr. Janet Choi. Pete is going to do a quick presentation, and then we will open it up to questions. So...

Thanks Annie. Thank you so much, and thanks, everybody, for joining us today. Michael Sturmer, Progyny's President; Mark Livingston, our CFO; and Dr. Janet Choi, our Chief Medical Officer, are here and going to join me for Q&A after the presentation. As a women's health company, we couldn't be more excited to kick off Women's Health Day at this year's conference. The industry has made a lot of exciting progress in recent years, and we're happy to see this highlighted on the agenda. The progress we've seen inspires every person at Progyny and will help you better understand what Progyny is doing to raise the bar with respect to women's health benefits.[ Before we get started, I'll pause so you can take note of the caution regarding any forward-looking statements or non-GAAP financial measures that we may discuss today. I'll start with our investment highlights. First, we are far and away the leader in a large and persistently growing market despite a global pandemic, rising interest rates, periods of sustained high inflation and fears of a recession. And since launching our benefit 9 years ago, we've seen an increasing number of companies providing coverage for our services, and we've built a large, highly diverse customer base. We began with a focused effort in fertility and family building and now have a broader portfolio addressing more areas of women's health. And our model was designed to provide multiple pathways through different products, channels and relationships for achieving our growth objectives. We're unique in that our model has been proven to create meaningful value for all key constituencies. And finally, we're profitable, generating meaningful cash flow, and we see opportunities to further leverage our scale as we continue to grow. Let's dive in a little deeper. We went live in 2016 with 5 clients and 110,000 lives. And now we're over 530 clients and 6.7 million lives. And since inception, over 99% of our clients have chosen to continue offering Progyny to their employees, an incredible testament to the value of our solution. We started in just 2 industries, we now span more than 45, demonstrating the universal appeal of our services. And our unique data-driven approach has driven this growth, and we've consistently earned an NPS score above 80 over the last 9 years. We're a mission-driven company, and we understand women and families need a health care system built for them. And there are many areas where we focused our efforts and differentiated our solution. I'll focus on just 3 of them. First, we have a solution and foundation that results in unparalleled favorable clinical outcomes and member experience demonstrated by clinically validated metrics, measuring the efficacy and efficiency of our program. We've reported on every metric, every year and for every member journey, demonstrating the meaningful results we're achieving for both employers and members. No one else has either been willing or able to show this level of transparency, commitment or insight. Next, our plan design provides comprehensive and flexible coverage to give members the best chance at realizing their family building goals. We've been doing this for nearly a decade, and we've proven you can provide comprehensive coverage and still do it in a better, cost-effective way. Third, we've aligned our provider network to the benefit through plan design, responsible clinically based utilization management with our providers, data sharing and an unprecedented level of coaching and support, helping members at every stage of their complicated journeys. And we continue to be differentiated. None of those areas are quick or easy to do, which makes them very difficult to replicate. And we're broadening our solution wherever we see opportunities to address areas that are either overlooked or underfunded. We'll use the same pillars that built our core family building solution for any future expansions. Now for many in health care, value-based health care is an aspiration. For us, it's a reality. We're delivering on the promise of value through our unique approach to plan design, benefit management, network access, personalized coaching and digital tools. That starts with creating solutions that are flexible and customizable, delivering the right care at the right time for each and every person. We'll never be a one-size-fits-all benefit. Every member is different, and our plan design is uniquely flexible to the individual patient while simultaneously being equitable for all members and good stewards of our clients' spend. We pioneered and have in place an unparalleled level of collaboration across our provider network, empowering providers to deliver care more effectively while uniquely enabling us to do active benefit management for every single member. And when you deliver an unparalleled solution, which includes leading outcomes, you deliver industry-leading member experience and cost control for employers. Now let's spend a moment reviewing the impact of our benefit. We capture data, including clinical outcomes across hundreds of thousands of patient journeys for every member since the first journey with us in 2016. With this vast unique data set, we're able to drive unparalleled continuous improvements in care. To begin with, more than half of Progyny members engaging with our benefit pursue nonmedical treatments, including coaching in our preconception program to satisfy their journey. Now 1 in 5 people do suffer from infertility for the CDC and when medical care is required. We're getting members to better results faster through fewer rounds of care to get pregnant, fewer high-risk pregnancies, fewer miscarriages and fewer babies in the NICU. Let me give 1 extremely meaningful example of our impact. If you were some of you know has experienced this journey, you'll know how the retrieval is one of the most costly aspects of care and IVF and is also physically growing to the patient. Reducing the number of retrieve was necessary to achieve a live birth is hugely consequential to the members and plan sponsors. And because of our innovative approach, we're achieving a substantial reduction in average retrievals per patient. The average Progyny member requires 1.5 fewer retrievals to achieve a live birth. That's an extraordinary result, and none of our competitors are measuring -- nevermind reporting an impact like this. Our plan design centers on complete and effective treatments. On an overall basis, our solution, including our clinical outcomes and effective treatment management rooted in clinical efficacy drives meaningfully lower costs for clients, delivering roughly 30% savings when compared to alternative options. And our approach ensures the optimal member experience where our members never run out of coverage partway through treatment, eliminating the scarcity mentality and enabling patients to make decisions driven by medical need. Our solution also drives improved recruitment and retention, higher productivity, lower absenteeism, additional areas where we have a significant impact for our plan sponsors. In fact, our model is the only one in market with a documented history of delivering substantial value to the 3 constituencies every health care solution must address. The members, the client's response to the coverage and the providers who deliver the care. Now other solutions may do something beneficial for one, sometimes 2 of these stakeholders, they usually not equally well. It's difficult to do that when they are employing the traditional approaches such as attempting to control costs by restricting utilization through dollar maximums, step therapies and treatment exclusions. Our moat is so big and the things we're doing are so difficult to replicate. It isn't necessarily surprising to see that newer entrants who lack the capabilities we do revert to these practices. Nonetheless, it's disappointing to me that companies marketing themselves under the guys of women's health are reverting to practices that effectively under insure members. We've proven there's a better way. That's why employers continue to increasingly turn to Progyny. We deliver value-based care, member experience and cost containment simultaneously. And our mission is to help people realize their dreams and we've proven that can be done in a way that's better for all. We're so proud of what our clients say about us. The impact we're making is captured in this quote from the head of benefits at HCA, the largest hospital system in the country and they say, Progyny is easily their most loved benefit and the one they're expanding because we've proven to successfully manage their program. The impact of our overall offering is evident across our solutions, starting from preconception and conception, supporting journeys that either do not require medical intervention or journeys that do and extending through to pregnancy, postpartum, menopause and midlife. Each of our offerings is designed to get members to the right care at the right time without unnecessary and counterproductive delays. To do this, we've made significant investments in clinical education and emotional support, simplifying every member's journey. We provide high-touch, one-on-one engagement with inbound and outbound outreach from a dedicated patient care advocate and the experience is wrapped within the comprehensive set of digital tools. We've clinically integrated the PCA into the journey allowing them to initiate proactive, AI-assisted outreach at critical points along the way, such as health risks affecting inception, nutritional information to improve perinatal health, or alleviating the symptoms of menopause to improve the quality of life. This high-touch model then pairs with the virtual and in-person access we've curated to specialize providers for the appropriate clinical care. When you're the leader for a decade, you expect others will likely throw stones. Some of desire Progyny's leadership position have suggested inaccurately that we drive members to specific treatments out of our own interest, not theirs. Nothing could be further from the truth and every metric we have confirms that. First, more than 50% of all enrolled Progyny members engaged with our preconception coaching program and digital tools and satisfy their journeys without ever seeking formal medical treatment. Second, our higher success rates point to the hard work we do to deliver the highest quality, most efficient care. That starts with ensuring clinical best practices are followed only for those in need of medical care. And for those needing care, many variables, including age, medical history, comorbidities and personal goals factored into the decisions that members make with their physician for treatment. Now to further ensure allignment to best medical practices, we look to metrics like the average age of those using IVF. With Progyny, it's 36 years old, which aligns perfectly with the national average. And as mentioned before, our members require significantly fewer treatments to achieve their goal, driving down usage and once again, illustrating our approach of getting the right care at the right time for everyone. With our proven value, we're in our strongest ever competitive position, reflected in the number and quality of the relationships we've forged amongst clients, channel partners and clinics. We've built a strong partner ecosystem comprised of health plans, TPAs, PBMs, care navigation solutions and other benefit aggregators. And as a result, going forward, we're going to be able to reach even more potential buyers. Our most recent additions include Cigna as our first national health plan, you may have seen the press release they issued yesterday to announce our exciting relationship. As well as another large regional health plan, demonstrating our ability to convert competitors into partners through the strength of our offering. And some of these groups are also Progyny clients. That's a remarkable testament to our solution, the experience we create for members and the value that we provide. Building partnerships is one way to create value. There are many others listed here, which collectively have had a significant impact on our financial results. In each area, whether it's new client acquisitions, client retention, member experience, new product development and TAM expansions, we've delivered every year we've been in market. And we're often asked, what do people most misunderstand about our business. The answer is simply it's how little variability in utilization and care consumption in the short term actually impacts our overall growth in the long term. Over the years, we've seen periods of timing where members used the benefit in slightly different ways, slightly favorable or unfavorable to expectations. But that variability in the short term in utilization has been a relatively insignificant contributor to our financial results, as shown in the chart on the right. What the chart demonstrates is that when you average out utilization rates over the last 7 years and apply that average to each year versus actuals. There's only a $22 million differential in revenue on a cumulative basis over a 7-year period. That variability hasn't in any way altered the overall health and growth of our business. And the biggest impact to our business is our delivery of excellent care, coupled with an extraordinary member experience and cost control for our clients. This has enabled us to grow our client base significantly throughout our history. The last 4 sales seasons, we've added at least 1 million lives and with 6.7 million members we're nearly 5x our size just over 5 years ago. Consistent with what we said at our Investor Day, our goal is to add at least 1 million new lives annually. And we do this by continually innovating our go-to-market strategies, developing new channel partners and expanding our offerings. In this past sales season, we tested different structures and guarantees that align with what our clients value. This contributed to one of our most successful sales years amongst jumbo accounts, where we competed against all competitors, including the VC-backed competitors, and we won every single jumbo client. And given our data and tight benefit management, we're uniquely able to offer these guarantees through our scale, experience and continued clinical success and we expect to employ these tactics even further in the upcoming sales season. Our average client won this past year was larger than the year ago period, excluding the large federal population with a unique benefit structure, and we've seen a strong appetite across all industries and amongst companies of all sizes. And the distribution of our member base by client size is nearly identical as it was a year ago, across an even larger base. With essentially the same number of members coming from clients with at least 10,000 lives. This continuity reflects the new clients and our high retention rate. And this year, we achieved our lowest number of absolute client losses since 2021 with just 5. As we disclosed, one of those 5 was a large client. And while we never want to lose any clients we believe this was a single client decision and not representative of our overall book of business. We also earned continued commitment for more than 99% of our other clients for 2025. In recent years, 20% to 25% of our client base grew their Progyny relationship through upsells. This year, that grew to approximately 30% of clients increasing their program with us for 2025. Historically, that meant adding more smart cycles or adding other services such as egg freezing or Progyny Rx. While those still occur, upsells now also include our newest services in maternity, postpartum and menopause, giving us a robust platform to grow across every client. We're extremely pleased with our first year offering these services where approximately 20% of existing clients and 40% of our newest clients are adopting 1 or more of these programs. 20% of our clients with more than 1.5 million of our covered lives will have at least 1 additional program beyond the core fertility and family's Building Solutions, laying the foundation for what will ultimately be a more diversified book of business with different revenue streams. As we've said, we aren't expecting the newer services to be significant contributors right away, given their different unit economics, which are flat case rates as well as our need to build awareness for the new products across the member populations. We do expect, however, then to deliver a meaningful and growing contribution over the next few years. Even with our success to date, we're still in a very early stage of penetrating our TAM. There are over 8,000 large self-insured companies in the U.S. and we only work with about 7% of them today. And we're even less penetrated in covered lives given our expansion into both labor and federal government relatively new markets for us. Our next steps include expanding our TAM, first into the middle market employers with under 1,000 lives, which are both traditional ASOs as well as fully insured populations. Second, expanding more into global across all categories on the heels of our first ever acquisition to enhance our existing capabilities in the world. To date, we've grown our addressable market by more than 50% over the past 5 years. And with our focus into middle markets, we have visibility to a further 50% expansion in a market we currently don't sell to today. Focusing now on the value we're creating for our investors. We're the only company in our space and quite frankly, 1 of the few in the broader digital health ecosystem that is both profitable and has been generating significant cash flow from an early stage. So scaling for us is about expanding margins and increasing cash flow. In fact, we're approaching $0.5 billion in cumulative operating cash flow generated over the last 5 years. Our priorities with that capital are: one, continue to evaluate further share repurchases to the extent we believe the stock is undervalued. We completed $300 million of buybacks in 2024, reducing our shares by over 12%. Two, strengthening our business by investing in new products that could profitably address other key milestones of life; three, continuing to invest in our go-to-market resources to ensure we're achieving our growth targets. And finally, M&A that can complement our strategic vision, but only through a disciplined and selective approach that achieves value creation. As we look into the near term and beyond, we see additional opportunities where we can further leverage the platform we've built. The center area reflects where Progyny is today. The surrounding space are areas where women need improved access to care, better education and support or both. By leveraging the competencies we've already built to support complex care needs we see opportunities to expand over time using these criteria. There are the conditions that when unaddressed lead to costly outcomes, delayed care or misdiagnosis. There are areas in health care were closing gaps where traditional coverage may not exist and finally, expanding access to high-quality care to everyone. There are a lot of possibilities we're considering as we've earned the right to do so because of our history of driving the better outcomes while reducing costs. Hopefully, today's presentation has helped you see why we enter 2025 excited and confident about our future. We're a differentiated solution in a large and growing market. And because of the work we've done over the past 5 years to expand our TAM and build out our offering, we believe our market opportunities are greater today than ever. Our proven model is creating meaningful value for all our stakeholders, our clients, members, providers, partners and investors. Thanks so much for your time today. Michael, Mark and Dr. Choi will now join me for Q&A.

Great. Thanks so much, Pete. That was a really informative presentation. I want to start with you recently purchased a lot of stock. Despite things in 2024 having been somewhat difficult. So you clearly have a long-term vision for the performance of the company. Can you share what is giving you that confidence just kind of step in here?

Sure. I'm already a significant shareholder before that purchase. But I made the purchases that went through all the highlights in my presentation as to why we're excited about the future that I thought we were undervalued. And so I double down on my investment basically as simple as that.

Great. You just completed the first selling season with an extended offering of some of these adjacent solutions areas like menopause, how did this impact conversations during the selling season? How receptive were your employer customers to new products?

Sure. I'll let Michael answer that.

Sure. Thanks. So yes, the conversations were received really well. It allows us to -- certainly, those that are looking to expand into their family into family building and covering family building benefits go really deep in that area because of the cost involved in it. What was nice about the additional services that we've rolled out this year is it really allows us to expand the conversation with them and show not only our ability to support what is a relatively small population but our ability to support much bigger and broader portions of their female population than employees. So really excited and excited to sort of be able to take that momentum into this year.

Great. Pete, you kind of touched on competitive differentiation. Maybe we could touch on the competitive landscape. Because it's something that everybody is really focused on right now. Have conversations with employers changed at all in the past year? I know you kind of lead with outcomes, right? But can you maybe walk us through the pitch to an employer on why you should win?

I'll start with conversations haven't really changed in the past year versus prior sales season and the sales season before that. Over time, the conversations have changed more towards no longer about whether or not you do or don't need a fertility or a family building solution or some of the other products, but more about just prioritization and when they're going to do it and then obviously differentiating our solution versus everybody else. Mike, I don't know if you want to add anything there?

Yes. The only thing I would add is that the level of sophistication has certainly grown and expanded including those groups that employers look to for guidance in our consultant populations, where most of the large consultants now have centers of excellence that are specifically focused around family building and other component parts within women's health. And so that's been beneficial in being able to get to a next level in a more sophisticated conversation where, frankly, our value prop shines even more.

And can you just speak to as employers think about prioritization of benefits and how they're kind of thinking about all of the moving pieces in a benefits offering. Obviously, cost has been a really big impact for them this year. How are they thinking about kind of fertility within that? I mean I think there's a lot of discussion around that, but in some of our checks, what we're hearing is like the thing that employers are really focused on is access. So can you just maybe talk about that?

Yes. I think employers continue to focus on and have strategies around access to care, which certainly without a benefit coverage, you're significantly hampering access to care. So coverage starts sort of that conversation. But it's access with the highest clinical outcomes and it's access with the highest clinical outcomes for an experience with their members, all -- and then all wrapped around the ability to control within that ecosystem. And the way our services are set up, we're able to influence each part of that. And it certainly does start with access, but it continues on to those other levers that have driven design decisions and benefit decisions over the years.

And are rising costs impacting their decisions on kind of how full some their benefits should look in this environment.

Cost is always going to be a factor. And certainly, this past selling season was -- that was true, we anticipated that being the case in the upcoming sales season. But it's cost control and these employers really want to do this. It's cost control while providing the enough coverage for their members. And that is a balance that they look at. And again, we've shown and Pete referenced, I think there's also a big reason why we had so much success with our jumbo clients last year. We were really able to show the ability to provide a complete benefit, a full benefit that allows for enough coverage while still controlling that cost in a very meaningful way and putting performance guarantees around that and so again, I think that really helped differentiate us last year, and we anticipate the same this year.

Great, Dr. Choi, we don't always get to hear from you. So I would love to bend your ear here. Kind of along those lines of differentiation, can you talk about from a physician's perspective, how is Progyny's model different from its competitors? And maybe kind of along the lines of what Pete was saying in terms of like not directing benefits, right? Like I guess in my personal experience, my insurance did not necessarily direct my care so much as they said, no, you can't do this. So can you maybe talk about that?