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

Allen Lutz. I lead health care tech and distribution equity research here at Bank of America. We are very excited to have here Progyny. We have the CEO, Pete Anevski; and CFO, Mark Livingston. Gentlemen, thank you both for joining us.

Thank you for having us.

I think to level set and to start here, I think there's been some volatility in IVF and fertility trends over the past couple of years. And I'd love just a lay of the land of kind of the most recent thoughts around what happened in 2023, what happened in 2024 and what you're seeing so far in 2025? Kind of tell the story of how things have evolved and kind of the utilization trends that you're seeing through 1Q of this year.

Sure. So when we talk about volatility, there's sort of 2 pieces of when you talk about utilization, it's overall utilization, and then there is care consumption within utilization. So if I start with '23, through our history, we've seen a range of utilization in a given year overall and the range has been roughly 1.03% to 1.09%. '23 was a year where it started out, what I would call, midpoint of that range in terms of utilization and strength throughout the year where the year ended up being one of the higher years of 1.09% utilization. Going into '24. '24 started comparable to '23 in the first quarter. And then what happened was utilization soften, both overall utilization, although not as much, but care consumption softened and not only softened, but operated differently than it normally does sequentially as the year unfolds, where normally you see an increase in ART cycles per utilizer sequentially as the quarters progress. And you saw that in Q2, but then you saw for the first time ever a dip in Q3, but then a return back in Q4. What we're seeing in '25 is we're seeing more stabilized utilization, whether it's overall utilization in terms of number of people utilizing the benefit and female utilizers when we talk about it or whether it's care consumption, both are more stable, and we saw that stability again return in Q4 and continue in Q1 and our visibility right now in Q2 is consistent with what we're seeing in both of those periods. So I would say a much more stable environment relative to overall utilization and care consumption.

That's great. I appreciate that color. And I think that context and background is important. So Pete, you mentioned that what you're seeing now is consistent with what you've seen in 4Q and 1Q. Maybe this is a question for Mark. As you think about what's embedded in the guidance for the remainder of the year. Can you talk through the stabilization you've seen over the past couple of quarters? And then what's embedded in the guidance as it relates to what you're seeing today?

Sure. Our philosophy on guidance has really remained fairly consistent over time. I think it's really important to us to provide that transparency to investors as to what we're seeing at the time. And our comments have always included here's what we're seeing, here's what we're seeing looking forward. And for the quarter that we're currently in. What's different, if you will, is as we evaluate the variability that we've seen at any one point in time and over the period, we look to incorporate that into the overall ranges that we're providing. So Pete described some of the variability we saw last year that's now incorporated into the ranges that we began really frankly, giving in Q4 last year, for Q1 as we started this year and now as we look forward for the balance of the year. And of course, along the way, we've actually provided a bit more KPIs around that from a go-forward perspective than we've done historically. So it's all about trying to allow investors to have that point of view into what we're seeing.

That's great. And then switching gears a little bit to the 2026 selling season. Pete, you mentioned on the call last week, the pipeline is pretty comparable to what you had last year, but the average number of lives is a little bit lower. I know it's early in the selling season. So maybe remind us kind of where we are in the selling season, but also unpack, what do you think is driving that specific piece?

Sure. So if you think about the selling season, in a benefits business where people are making decisions. The majority of companies in the U.S. are calendar year companies. So they're making decisions by October, if you will, they start to evaluate in February. So think of the sales season as pipeline building from February through October and mid-August is when materially the commitments are starting to happen through the end of October. So that's your selling season. So we are, let's call it, 3 months into the selling season, have another roughly 5, 6 months to go relative to selling season. Relative to the commentary and the average deal size that we're seeing in the overall pipeline, what we believe is happening early on in the selling season is the uncertainty in the macroeconomic environment could be impacting larger companies more and they have more of a wait-and-see attitude relative to what might happen to their business vis-a-vis tariffs and how they may impact them. As you might imagine, larger companies are a little bit more complicated. And so for them there's a little bit more for them to navigate. And so they could be pausing as opposed to would have started already, to start to evaluate some of these opportunities. But overall, we're seeing overall number of prospects, again, comparable to positive versus last year. Dollar contribution relative to pipeline comparable to last year because the average lag is a little over, the dollar contribution is comparable because the cohorts of prospects are in industries that are higher utilizers for us traditionally. And so that's how we sort of evaluate the overall picture.

That's great. And then around new products, you talked a lot at Investor Day about new products that you're introducing. Maternity, postpartum, menopause, return to work assistance. I know that these specific services and products are not expected to be a material near-term driver of revenue. But when you're talking with your current customers, in your prospects can you talk about how the creation and introduction of these new products is resonating with them? And just give us a sense of what those conversations are like?

Sure. So I'll start with the last sales season as a data point and indicator of demand for these new products. So where we sold menopause and maternity, pregnancy postpartum last year, 20% of overall clients took one or more of those expanded products, 40% of new clients took one more of those expanded products. It's -- and then you talked about the other products that we have, and we'll be going to market with. Their overall -- part of the overall solution that addresses many needs across a larger portion of their population, if you think about sort of the nature of the products and that's positive relative to a benefit manager as they're addressing the needs of their population. And so it's very much a desire for them. The second piece so that they enjoy and benefit from both from a member experience perspective, but also from the benefit managers perspective is being able to go to one place to buy these things is really important because it makes it easier for them from a vendor management perspective but more importantly, from a member experience perspective, it makes it easier as opposed to having many different individual point solutions addressing all these needs. And so it's resonating well, a lot of these are informed by both input that we get from our current clients, but also input we get from the benefit consultants in terms of what people are looking for and areas that they want to address. And so it's been pretty positive reception so far.

That's great. And then maybe a question for Mark around the 2028 expectation for these new products to be 10% of revenue. I guess, first, can you talk about your confidence in that target? And then second, what's a reasonable cadence because I think they're not material today so if that -- the Street is at $1.6 billion for 2028, that would be $160 million. What's a reasonable way to think about the cadence there to get from maybe a few million today to that 10% in 2028?

Yes, sure. So look, I think there's 2 parts to revenue in the case of the new products. One is, obviously, client demand. And as Pete said, great outcome from a client receptivity and uptake in just really our first proper selling season for the product. So off to a great start there and obviously, we hope to continue that success over these coming years. The second is actually member utilization of the product. Unlike the fertility product, where if they need the benefit and there really is no other avenue for them, they come to us. We don't have to go out and seek them. That contrasts with menopause, for example, where somebody can just suffer with the impacts of menopause, perhaps not even realizing they have a benefit that can help address that. So part of the work, if you will, that we need to do over these coming years is to work with our clients to get that awareness at the member level and to draw them in. So it's driving both of those. So the model is a bit different in that we have to do that but we see that sort of engaging in, if you will, growing over time and the more that we layer on you'll have a greater impact in contribution as we get to from '26 to '27 and then '27 to '28.

That makes sense. And this is a little bit out of order, but the investments that you're making in the mobile app, is that going to be something that is going to drive an acceleration? Can you talk about the strategy around the digital app and how that can, I guess, drive more retention and customer satisfaction? Or I guess, what are the things that you're looking at the app to solve for?

So it's not just -- so I'll address the app specifically, but it's not just investments in the app. These overall investments in product expansion globally. So all the areas that we address in the U.S., when you're a multinational company, you want to make sure that you have products that address the same needs, OUS, as you have in the U.S., that's part of the investment. The other part of the investment is integration of the 2 acquisitions that we did. From a member experience perspective, from an app perspective versus having separate apps today that those companies had. And so having members being able to utilize just one app. So full integration of all the services in one app. And the last piece is enhancing capabilities within the apps relative to the existing products. And then all of that is also tied into a back-end infrastructure that sort of enables all that and enables you to be -- able to do that efficiently. The focus is always about having the best member experience possible. So to the extent that members have preference in terms of utilizing apps versus engaging with coaches for a portion of their experience. The app will do that, and we'll do that in the best way possible to the extent that it's a tool that PCAs and other coaches across the products can leverage and refer people to but still have heavy coaching experience because that's what an individual member prefers, that's what it will do. It just makes the overall experience a lot better for the member for whatever portion of the experience that they prefer to have digitally versus with a coach, be best that it could be. And so as a result, that does create greater stickiness, more member satisfaction less frictionless experience in your journey, whatever your journey is, makes it a better experience and, therefore, a stickier product for your clients.

And then going back to the cross-sell opportunity that Pete, you were talking about a little bit. I think you said in a normal year, you see 20% to 25% of the base take additional services up. Last year, it was 30% as you benefited from some of the newer services on the platform. What's your expectation for that number moving forward? Because you're -- several years ago, it was really just the pharmacy piece that was the main add-on. How do you think about that over the next several years where that can go and where that should go?

There's a couple of factors that have contributed to this, but I don't expect it to be -- I expect it to be in the same ballpark that it's been in a particular -- in the prior year, where there was more uptake on the expanded products. I don't expect that to stop, I expect that to continue. Conversations with existing clients are positive relative to what they're experiencing today, what they have today, and they're all positive relative to what else we have to offer. But as we continue to add and expand products, which we'll continue to do, it's that many more things that we can address more and more of their members and different milestones in their life and different areas and different needs, right care, right time, and so that will also contribute to continued positive upsell activity into the future.

The conversation that we had about the business was there's 80 million self-insured -- large self-insured lives that's our target market. But at your Investor Day, you talked about a pretty significant expansion of that addressable market. Federal, global and then smaller employers. As you think about those specific new buckets of opportunity, can you give us a sense of -- maybe not rank order, but can you just talk about where you're most excited? You're obviously investing for global expansion. But of those 3, just kind of talk about the opportunity set there and what you're most excited about?

Yes. So to frame it when we started our addressable market was commercial market, which was roughly 80 million lives in the U.S. We expanded that where we added labor to that addressable market that grew us to roughly 100 million in the U.S. And then on top of that, as we penetrated a portion of the federal population -- federal employee population, it's roughly 105 million now. One of the things we're working on now is expanding that market further into fully insured, which is roughly another 50 million lives. That's a product we're developing right now and the capabilities around that and the licensure around that, and that will position us well. If you think about it from a need perspective, right, the fully insured has the same needs because they're all humans as I like to say. And they have the same incidence and prevalence whether you're working for a small company or a big company, the overall trend in birth rates and the number of people having babies later in life is constant across industries and across size of the company. So that's a pretty big opportunity. The reason why we haven't gone after that before is because it wasn't efficient relative to client acquisition and the cost to do that. There are ways to do it now, and that's part of what we're developing and doing to be able to grab portions of that population in an efficient way. As it relates to the increase relative to global, the global opportunity addresses really multinational companies that always have the desire to have an offering that addresses not only their U.S. population, but their OUS population. And so that's important from that perspective. The U.S. population for us is the most important relative to financial opportunity, if you will, a financial contribution. But the OUS is important relative to their desires and needs to address their overall population. That's probably the best I could describe sort of those different addressable markets.

Yes. That makes sense. Shifting gears again, the Trump administration, there was an executive order on IVF back in February, which feels like a very long time ago. But are you having conversations with the Trump administration, I guess, is the first question? And then has this executive order changed the conversation with maybe some of your smaller regional prospects, are they more open to IVF or providing fertility benefits given the executive order, just really any commentary around the Trump administration and the executive order would be helpful.

Sure. So as a reminder, the executive order was asking for a recommendation around both protecting IVF as well as access and also affordability. Us and other participants in the ecosystem have been having conversations with the White House and those sort of focused on the recommendation. The conversations have been educational, if you will, relative to how things work mechanically, how players in the space, et cetera, in those kind of conversations. We haven't been able -- us or others in the industry haven't been able to glean anything with those conversations relative to what those recommendations might become. But the recommendation is generally -- the belief is that they generally affect potentially populations of the federal employees versus sort of beyond that because without legislative activity, the recommendations can't impact commercial. They could only impact the employees that the federal government controls, right? That said, we don't know where the recommendations are going to go. But to us, overall, the spear of the executive order is positive relative to wanting to create both access and affordability. And so that's a good thing, affordability comes in many ways, including just coverage. And so we would be positive to start with expanding coverage for federal employees, whether they're DoD, whether they're veterans, whether they're the full federal population, and that could set a tone for states to start to do more mandates, set a tone for other employers. As it relates to the question about whether or not more conversations are happening, smaller employers as a result of that. I'm not hearing that. So it's not like people heard this executive order and all of a sudden, they feel more or less compelled. If they do, they are not saying it to us.

Got it. Around that, would you be surprised -- you mentioned legislative, there would need to be legislative activity for something more material to take place. Would you be surprised if there was legislative activity either heavily incentivizing or mandating IVF coverage for employers or different subsets of the American population?

I don't know that it will be surprised. I think the devil is in the details in terms of what the mandate would be. So there's different mandates now in every state as an example, and whether or not mandate would be really comprehensive or the mandate would be a toe in the water relative to getting more coverage across the country. I don't know. And so I think if there is legislative activity around the mandate, the question would be what that mandate would look like. And I think that to me would be more than surprised than whether or not any activity happened. It is an area that, on both sides of the aisle is positive, not negative, including in states, there's positive activity relative to protecting access already in certain states that are anti-abortion states, for example, where the question is personhood in terms of an embryo versus is it property and so that's been positive. So I wouldn't be completely surprised, but it's more about the details of what would be mandated.

I want to talk about the competitive landscape a little bit. So as you think about it, kind of going back to the question on your core 80 million commercial lives. Now you're looking at sort of a global offering, you're going after smaller employers as well. Is the competitive landscape in those new markets different than just the commercial self-insured? And if so, can you kind of talk about the ways that it is different?

The competitive landscape overall -- I'll just start with just some general comments about the competitive landscape. It's not any more competitive than it's been in the past. And in fact, in some small players who sort of already fallen out relative to being competitors, right? As it relates to the specific offerings, whether it's global or whether it's fully insured populations or whether it's labor market, others are attempting to do those things. They don't have the same resources that we do so who knows, we'll see how much traction they get there. But overall, it's no more competitive than it is in the commercial market and in some places, less competitive relative to those populations. But either way, we feel good about the resources we have and the head start that we have in a lot of areas around those markets continue to advance ourselves to address those markets successfully.

So as we think about Progyny's competitive position, we think about how important channel partnerships have been to the growth of the business. We've talked in the past about Cigna. Can you talk about -- as you think about your top line revenue growth, your selling season, how important you have sort of a direct sales force, you have the channel partnerships. Is there any way to frame the relative contributions or, I guess, the scope of those partnerships and how they've grown in relevance over the time, like since the IPO? Is there just a way to frame? Are they more important? Are they as important? Just curious if you can provide any commentary around that.

The direct sales force still does the heavy lifting relative to all selling even if of course from any of those channel partners. The channel partners provide a couple of really important things. One is they provide credibility relative to them choosing you as a preferred partner in an area that's important to their clients. As opposed to then take the payers, for example, like Cigna or take some of the other regional players that we announced as opposed to them doing it then sort of recommend you as the preferred partner to do it is really positive from a credibility standpoint. They also -- to the extent that certain clients prefer that, they also give a pathway to easier contracting where you just have an amendment on the back of their agreements as opposed to having a total contract directly with us. We can do it both ways, but it's another avenue. But overall, the effort around selling is still direct sales effort. They're just another vehicle for an introduction to a prospective client. So they're positive, but not the biggest catalyst, it's still selling.

Okay. And then we only have a few minutes left here. So Mark, I want to get you more involved here. As we think about the guidance for 2025, can you talk about maybe the most important driver that gets us to the top and the bottom end of the range for that 2025 guide?

Well, let me tell you -- I'll start by saying what we don't need to happen. We never set our guidance with the expectation of having future sales or additional clients that need to come on board in order to get there. Again, all of our framework is around what we're seeing today based on all of the history and the historical patterns that we've seen for light customers, new customers and how they progress throughout the year, patterns that we see within pharmacy dispensing, for example. So all of those things are what's considered in the guidance, we take those forward. The -- let's call it, more negative variability that we've seen in the past, weighs more heavily towards the low end of the guide to the extent that -- so we've talked about stabilization. The extent that stabilization continues and/or begins to show the sequential growth in part cycles or female unique utilizer, for example, that's what pulls us up closer to the high end of the range. So there's no sort of other magic, if you will, that's baked in there. It's really what we're seeing today and how history has instructed us as to how these things progress throughout the year.

Yes. And then, Pete, going back to the selling season comments. As you think about the top of the funnel for the selling season around those that they were interested last year, but they pushed off to maybe reengage this year. Can you give us a sense of what were the major reasons last year, some of these prospects said, this isn't the right year? And then -- or I guess we can start with that and go from there.

Yet unfortunately, they're never crystal clear in terms of why they didn't buy in the year. They're just basically evaluating and deferring their decision. There's not a list of reasons that they give you. They're very, very -- it's a priority, but not a priority for this year kind of explanations without sort of -- explanations as to what became a bigger priority for them, if anything, right? But the good news is as this year is beginning similar to prior years, their early commitments at this point comparable to what they were a year ago are positive and come from the [ not-nows ] materially. And so that's consistent with what we see pretty much every year, where the early part of the sales year has commitments from [ not-nows ] for the prior year. And a lot of the [ not-nows ] are still remaining pipeline for the balance of the sales year, but early commitment and behavior from [ not-nows ] are consistent. But there isn't really explicit reasons that they gave you as to why they didn't buy in the year that they evaluate it.

Yes. And then you're making some capital and operating investments in the business that you've talked about, you mentioned some of the areas that you're doing there. Can you talk about the duration of those investments, how long should we expect them to go on for? And then how do you think about generating a return on those investments just from a high level the framework that went into making those decisions?

Sure. So as it relates to the duration, the incremental investments relative to what we've done in the past, both CapEx and OpEx that we're doing this year, materially the most of the investments will be in this year relative to those dollars, right? There may be some that spills over into next year, but materially, there will be this year. As it relates to ROI, it's member engagement, it's NPS, it's retention. It's all the normal things that you would expect but plus also all the investment in the infrastructure on the back end is also enables us to bring to market as we expand our product offering, those products even faster than what we can do today.

Makes sense. And then the last 30 seconds or so, I'll give you a minute plus at least here. What are you most excited about for the next year as it relates to Progyny and the story when we have this conversation a year from now, what are you going to be most excited to talk about a year from now?

The things we're talking about now. So we're already well positioned vis-a-vis all the addressable markets that we're going after, and we already have the market-leading product relative to facility and family building and the products that we're expanding into and investing in are pretty exciting. I think continuing that finishing our investment in our infrastructure and the digital products and memory engaging products that we'll have, we'll even advance us further and enhance our lead. I'm going to extend our lead vis-a-vis our competitor partners and we look forward to taking advantage of all of the addressable markets with not only the products we have now, but we continue to expand those products for the future and address as much of the clients' needs for as many in their populations as we can.

And I'll only add, we'll also be helping tens of thousands of people build their families.

Perfect, great. Great place to end. Thank you, guys. Really appreciate the time.

Thank you so much for having us.