Progyny, Inc. ($PGNY)

All right. Thanks, everybody, for joining us today. We're happy to be hosting Progyny. And to my right, I have Pete Anevski, the CEO. For anyone that doesn't know me, my name is Peter Warendorf. I cover Progyny here at Barclays as well as some of the other tech and distribution names. So Pete, maybe to kick off the conversation, so there was strength in 4Q. It seems like you guys came in ahead of guidance, maybe utilization was more stable. Can you give us a quick recap of the quarter and any highlights you think are worth mentioning? I know there was some nuance around membership that we'll dive into in a minute. And there was growth of around 20% in 2025 ex the one customer. How would you characterize where the business is at more generally?

Sure. Hello, everybody, by the way, thank you for joining us. So the business is in really good shape. As you mentioned, Peter, we exited the year with 4 strong quarters of utilization as well as growth. We're positioned well for 2026. We ended the year with another year of 99% client retention, which is really important. Roughly 30% of our clients added or expanded to their benefit in some way or another of the existing base. We had a strong sales year that we were pleased with. And overall, we feel good about with the investments that we've made in '25 and the investments we're making in '26, we feel well positioned for the future.

Great. So maybe to start on the membership side, I feel like that's a question that you guys and we probably get the most right now. You recently revised the estimated number of lives in '26 to 7.2 million, down slightly, citing some administrative-type updates rather than any kind of like layoffs or macro. Can you just give us a little bit of color around what happened? Why that happened now and maybe whether or not there was any industry or specific customer concentration there?

Yes. So a couple of things around that. One is there's no concentration in terms of industry or specific customers, where the adjustments were, they were generally lower utilizing clients. The way we sort of view it is, at the end of the day, the top line reported employment number isn't that important for us in terms of number of lives enrolled. It's an output as opposed to an input for us. What we look at is, we look at the utilization trends. We look at the number of members utilizing the benefit. We look at it on a monthly and sequential basis and are constantly monitoring that. We are not seeing an impact relative to the reported lives versus the actual utilization. So for us, it's sort of a nonevent, if you will, and more of a, I'll call it, reporting true-up than anything else.

Got it. And then I guess, I know you just said that those lives are utilizing at a little bit lower rate than the overall population. I mean, what gives you confidence that you may not see that with other clients? I'm just trying to get a sense for whether or not there could be more of those kind of updates that come throughout the year. And then what does your guidance assume going forward for member growth within the year at your existing clients?

I'll take the second part first. We don't assume, in our guidance, we don't assume member growth during the year beyond whatever we've sold and what's planned to launch throughout the year. And the majority of clients that we sold, launched already in Q1. The second thing is, in terms of confidence, again, what we look at is relative to where we saw adjustments, are there any public announcements out there relative to layoffs or anything like that? The answer is no. And so our expectation is that we don't expect to see that. The unique thing that happened this reporting period versus other reporting periods is that we had, on a net basis, a reduction. Usually, we always have true-ups, but they're positive and negative and they sorted that out. We just had a net reduction. That's an anomaly for us in all the quarters that we did report it.

Got it. Okay. And maybe we'll flip over to kind of more broad utilization and the trends you're seeing there. I know the guidance range this year assumes that you're at kind of the low- to middle of your historical utilization range. Can you just remind us what happened in 2025? What kind of utilization you were seeing? Maybe what you saw in fourth quarter? And then if you can give us any kind of update on what you've seen so far in 1Q?

Sure. So I'll start with the historical range of utilization. We've been in the tight range of 1.03% to 1.09% as a range over many years. We ended last year at a 1.04% utilization rate for the full year. The quarters were more consistent, and when we do utilization, it's on a unique basis. And so it's de-duplication of utilizers within the quarter. So again, it's the same overall, whether the utilization rate ends up at 1.04% or 1.05%, it's really about who's utilizing what throughout the quarters. And as you have somebody utilizing in one quarter and they spill-over and are doing multiple treatments in the second quarter, they only counted once for the full year as an example, right? What we're seeing now is what we guided with, right? So the utilization rate that we're seeing when we look at the first 6-weeks of utilization in the year, we look at that versus past patterns, in particular, from existing clients, but also for new clients. And we use that to predict utilization not only for the remainder of the quarter, but for the full year. And so what we're seeing is that, we're seeing what we guided to, and then we build in the variability in utilization on the low-end. And so the low-end of the range for the full year, both from an overall utilization rate as well as from a cycles for utilizers is what we factor into in terms of the variability that we've seen in the past that could happen during the year for utilization.

Great. And then within that historical range, I mean, how much does the broader macro environment impacts that? Trying to get a sense for sometimes we get questions like there's expected to be bigger tax refunds this year. Does that have any impact on what kind of utilization you're seeing or any of the broader macro concerns that are happening right now?

Sure. So I'll touch on the just the tax refund comment as an example. Our utilization isn't impacted by whether or not somebody may or may not get a quick unexpected cash flow like a tax refund or something, right? The member responsibility on average for us is around $1,500 a year. It's mostly a covered benefit and the majority of it is generally covered for most people. What drives utilization for us is people's primordial need to have a baby. And when they get to a point in life where they're trying to have a baby and then realize that they need, may need to help with the assistive reproductive technology, they'll utilize the benefit. That will overcome any sort of things that are going on for most people, a significant majority of people, whether it's anything happening in the macroeconomic environment, in the political environment, et cetera, because once you -- average age of a person moving on to IVF is 36 years old. Her ovarian reserves are already on the way down. The biological clock as I like to say, is real. And once they get to a point where they realize that they may need IVF, what then happens is they realize that the longer they wait, you wait another year, your odds of having the baby even with IVF services go down dramatically. And each year after that, go down dramatically. So if they want to build a family and they realize that they're infertile and need the help. And then when they go through a medical assessment with their doctor, and that's what they recommend, they also realize that they're taking a risk if they wait, let's say, they are concerned with the macroeconomic environment. And so what generally happens and the best example of that is the global pandemic with COVID, right? When COVID happened and the country shut down in terms of health care services, but for necessary services, when it reopened, fertility came back the fastest vis-a-vis many other areas of health care because, again, the biological need of building your family is so important. And we realize that, time is not your friend. You're going to go through and use the benefit when you need it.

Great. And maybe we can segue then to the competitive landscape. We get a lot of questions here. And I know Progyny has done a lot to diversify away from any single industry or client, and you guys had a pretty high win rate over the last selling season. But are you guys seeing anything different there in terms of your win rate, maybe what you're seeing on the pricing side or if you're seeing anybody become maybe more or less active?

Yes. So one thing -- I think part of what you're referring to, Peter, is the stand-alone competitors. But just as a reminder to everybody, we compete more with all the payers in this country who have a fertility benefit than we do those stand-alone competitors, right? So collectively, all the MCOs out there have a fertility coverage of some sort. That's been the case since our first day. That's the case through today. The stand-alone competitors are out there. There's no sort of difference in a competitive -- from a competitive perspective for the stand-alone competitors. They've been around, some of them longer than we've been around. So that's really not a changing dynamic. They've been out there. They'll be out there, but we continue to be differentiated versus them. And so no issues whether it's from a pricing perspective or just from an overall, we continue to win, each and every year when a client makes a decision to add this benefit or not versus everybody else combined versus all the payers and versus all the competitors combined, we win the majority of the time on a deal when the client makes a decision one way or another to do this benefit.

Got it. And it sounds like then -- so the MCOs are -- they're not getting any more aggressive necessarily in the space. Like do you feel like -- we get some questions around people are surprised they haven't made more of an effort maybe in fertility. Like what do you feel like your competitive moat is there? And why have they maybe not gotten more in the space?

Yes, it's a great question. We get it all the time as well. So the MCOs don't make a penny more or less if they -- if the client takes this benefit. When you think about a 1% utilization rate, it's not a lot. They already have the network set up. Whether they turn the diagnostics on or off, doesn't really matter. They're not doing what we do relative to the solution, relative to having care navigators, relative to the program management and the network management that we do, they're just not doing it. The reality is that they have many other conditions to manage in health care. And this is not one they're focused on because there's no financial incentive based on their model to charge more and do a bigger solution, they're just not doing it. And that's why they haven't -- not one of them has to-date. A few of them over the years have tried to wrap a marketing wraparound in terms of what they're doing, but not really changing fundamentally what they're doing underneath, but that hasn't proven to be competitive for us. So overall, it's just not within their priorities.

Got it. And then maybe we'll jump to some of the other opportunities in the business. I know you guys talked about 30% of the customers added to their offering in the last selling season. Can you maybe give us a sense for how much of that's coming from additional cycles? What's coming from new products like menopause, postpartum? And then in terms of clients that are adding those new offerings and what the response has been? And where are you seeing the most interest in terms of conversations for next year?

Yes. So it's hard to break down the 30% because many clients will do more than one thing in terms of expanding the benefit. They'll add a cycle. They'll also add, for example, menopause or they'll add pregnancy postpartum, et cetera. But in general, clients are responding well to the overall benefit and then adding to it, that's been happening since the first year of sales, we're now coming on to our 10-year anniversary. Since the first year over time, each sales year cohort, generally adds something as time progresses, and as they have a good experience of the benefit, they'll add, for example, initially, they may have only gotten a 2-cycle benefit, they'll add a third-cycle. They maybe didn't cover fertility preservation in the form of egg freezing, they'll add that. Maybe they didn't do adoption and service, they'll have that. And now with the expanded products, they want to address a larger portion of their population. So they'll add the menopause offering or they'll add the maternity support, et cetera. So all of these are areas that, based on the last 2 years, where we've had success in selling these -- the expanded offering and expect that to continue for the future because these are areas that are important. They're adjacent to what we're doing already and are important to clients in terms of having one vendor manage multiple solutions and cover a larger portion of their overall population.

Great. And then in a similar vein, we'll jump to Progyny Select. And you guys obviously expanded the market there, your potential TAM there by looking at the fully insured market. I mean what specific feedback from employers did you get that kind of pushed you in that direction? And then in terms of the sales cycle, is there any difference from the traditional sales cycle that you guys see?

Yes. So I'll take the first part first. So, infertility in the instance of prevalence of infertility is 1 in 5 in the U.S. It doesn't matter whether you work in a small employer or a large employer, that need is a human need, right? Small employers who generally buy in the fully insured market, generally don't have access to this type of benefit. The demand is from those that serve those employers, so the general agents and PEOs, et cetera, that are out there, love the idea of having a product that they could sell to their small employer groups, so that they could then be viewed by their employees as acting like a big company kind of thing, right? And then it's a very real need. It's a human need. It's 1 in 5 again in the U.S., right? So on top of that, when we talk about our history around client retention, that's also really attractive to them because in the broker world, turnover of small group employers is pretty high every year. And so the idea of having a benefit that's unique and uniquely offered by that broker or that general agent to those employers, that is as sticky as it is for us in the self-insured market would also help them overall in terms of turnover. And so from those -- from that perspective, it's an attractive product because it fills a very real need. We're able to offer it in a way that gives predictability in terms of cost of the smaller employer and gives -- and has an attractive product in terms of a differentiator for those that launch with us first in market. And then in terms of the sales here, they're not unlike in terms of when fully insured buyers buy. The significant majority of them are 1/1 calendar year companies. And so they'll renew and the renewal period is generally in the fourth quarter, a lot of times later in the fourth quarter. And so it will be the same cycle roughly, maybe a little more towards the back of the half of the fourth quarter in terms of actual commitment than what we normally see with our ASO population, which generally are making decisions around their benefits in the middle of August through October time period.

Okay. That makes sense. And then when you guys think about the risk of that associated with that model, obviously, these are smaller customers. I think you've talked about it being on a PM/PM basis. I mean, just curious how you think about that risk? Maybe what kind of contract duration you have with these employers? And then what kind of capability you have to reprice as maybe utilization ebbs and flows a little bit?

Sure. So I'll hit that last part first. So fully insured buyers buy on an annual basis. And so they're 1-year contracts. And so each year, you set premiums based on experience that you see. So if our underwriting group is off by a little bit and we have to adjust premiums in year-2, we can easily do that because that's how they buy each and every year. No different than how they buy their medical insurance each and every year. They get premiums at the beginning of the year for the full year and each year, those premiums change, right? As it relates to risk, in the early days when the populations are smaller, there's a little bit of utilization risk that we're going to take. But if you think about it, we've been managing -- we have more data than anybody relative to managing this benefit for a large self-insured population. We manage the benefit on behalf of our employers that have been doing it successfully with over 7 million lives, doing it successfully for 10 years now. And we're just going to do the same for ourselves. So once the risk pool gets big enough, doesn't have to be that big, then it's going to be no different than us having a large self-insured employer to manage the benefit overall and that utilization risk will be mitigated based on the size of the risk pool.

Got it. And it sounds like you've obviously stated there won't be much financial contribution until 2027. But are you having some initial conversations around the product? Like what's the initial feedback been?

There won't be any contribution, just to be clear, until 2027. But we've been having a lot of conversations and have been signing distribution deals with those that serve the fully-insured market. The conversations have been real positive, relative to response to the product, viewed as unique, game changer quotes that I've heard, but super positive when we talking to a lot of folks, whether they're orderly down to the broker level, all the way up to the general agents and those that run the PEOs, et cetera, across the board, all really positive conversations that are progressing this early in the sales season.

Great. And it's now that we only have a few minutes left, I mean, I want to hit on some of the financials before we call it. But you've guided for revenue to be about 7% growth this year, which is kind of in line with membership. I know you have some of the single customer headwinds in the first half of this year still, but curious what can push you kind of the high versus the low end of that guidance range you have?

Yes. The biggest thing that can do that is always utilization overall, but within it, consumption in terms of cycles per utilizer. That's always the biggest factor that's going to meaningfully swing one way or another, revenue versus expectations.

Got it. And we get some questions around this. I mean I think the 1Q versus full year guide implies maybe there's some utilization ramp throughout the year. And we get questions around like why shouldn't we extrapolate that 1Q, which is a little bit lower to the full year? And I think you've talked about this in the past, but just wanted to let you clarify that and what gives you confidence in that ramp?

Yes. So every year, the seasonality in terms of consumption of the benefit is that the higher proportion of members are in the first quarter going to do consults versus doing actual treatments as a percent of total utilizers, right? That then grows in terms of those being cycled utilizers versus just doing the early initial consults and diagnostics as the year progresses in quarters 2, 3 and 4. That's not different this year. That's been the case since I've been running the company in 2017.

Yes. All right. And moving on to the margin side of things. I mean, I think you guys improved gross margins by like 200 basis points last year. EBITDA was maybe a little bit more modest. The guidance seems to suggest some incremental EBITDA margin headwinds this year as you make some of those investments. I mean, longer term, where do you see the biggest opportunity on the margin side? How do we -- how should we weigh maybe gross margins versus EBITDA margins? And how should we think about that?

Sure. So the overall opportunity for us beyond '26 to expand margins is a couple of things. One is the tapering off of the investments that we're making. We don't expect that to go significantly beyond 2026, and so those are incremental investments that started in 2025 are continuing in 2026 and won't continue at that level going into the out years, right? So that's the first thing. So that's -- a lot of those dollars are embedded in the P&L. A higher proportion of that spend, although on an overall basis is roughly the same, is hitting the P&L this year versus last year, right? That's the first thing. The second thing is, as we continue to be efficient, continue the investment in the platform itself is set up to make all the care management services and everything that we do that could impact the gross margin line more efficient, but also just overall, the business is going to create efficiency. And then on top of that, as we make our investments in AI and augment the ability for every employee to be able to serve their respective customers, whether they're internal customers or external customers, that will create efficiency down the road as well.

Got it. And I know you talked a little bit about the early selling season results on the last call. Just wanted to ask you, I mean, how does the current pipeline for prospective lives compare to this time last year? And maybe are you seeing more -- any more first-time buyers versus people that pushed at the end of the last selling season? How does that look?

Yes. The majority of commitments so far are carryover pipeline. That's no different than every other year. We're pleased with the pipeline in terms of where we're at and how we're set up for the upcoming sales season. And we look forward to a good year and taking advantage of how we're positioned.

Great. And then to wrap it up, I know we only have about a minute left here. Can you just remind everybody what the expectation is for each selling season in terms of how many members you expect -- or lives you expect to add? And then anything you think that people are missing or anything you want to touch on to wrap this up?

Sure. So we generally expect about 1 million lives. We're also hopeful that Select will add incrementally to that. And in terms of just where we're set up, where we're at, how we're positioned, how we continue to expand our addressable markets. We're well positioned. We continue to expand our moat vis-a-vis stand-alone competitors or the MCOs that are out there. And our opportunity is significantly ahead of us, and we look forward to continue to deliver.

Great. With that, I think our time is up. So thanks, Pete. Really appreciate the time today.

Good seeing you, Peter.

Good to see you too.