Progyny, Inc. ($PGNY)

I just want to make the [indiscernible] last year or prior year. I think if you look at our [indiscernible] look at sustain of our demonstrate client satisfaction that manifest itself [indiscernible] that's really positive. We also talked about on the call [indiscernible] that a large present with us their third-party [indiscernible] over 8-year period. So [indiscernible] doubling [indiscernible] their [indiscernible] bunch of other really important [indiscernible] favorable outcomes that [indiscernible] we talk about all the benefits [indiscernible] perfect better members avoidance.

[Audio Gap] and increased clinical outcomes, and that's exactly what they're looking for, for all their benefits.

And that makes a lot of sense. You talked about 99% client retention and you mentioned all the differentiators right there. If we take a step back and we look at not really the competitive landscape but maybe the demand for fertility solutions over the past couple of years. clearly, the trajectory of the market opportunity has evolved. But would love to get a sense from your perspective, how fast do you think the fertility addressable market is growing and how to think about how that's changed over maybe the past 2 or 3 years?

I think the market continues to grow, driven by the macro trend that we see where both fertility rates are declining overall as well as the number of people giving birth in the U.S. or higher proportion now that are over 30 versus under. So 53% of women that game birth based on the latest CDC data were over 30 versus under 30. And then within that, even greater is the 35 and over. So the average age of a woman going through IVF is 36 years old and 35 and over continues to grow at a compounded rate of above 2.5% over the last 10 or 11 years, right? So on an overall basis, the demand driven by the macro trend is increasing the overall industry continues to grow at a roughly 9%, 10% compounded rate per year. And we'll continue to do so and continue to do so, I think, even more given the fact that the trend of people waiting longer in life to start building their family hasn't stopped and is more pronounced. And as it keeps being more pronounced, it's going to drive that need even greater and greater.

That's great. And so the industry growing 9%, 10%. And also, your revenue is starting to diversify in a few different ways. And you talked about the Cigna partnership as one example on the last earnings call, you have a more mature Blues relationship as well. Can you talk about how material a contribution the health plan partners are today, and is it fair to assume what's the relative growth rate of health plan contributions relative to direct? Is it materially different? Just trying to get a sense of the trajectory of both of those parts of your business?

Here's the way to think about the distribution partners that we're signing up and doing business with are continuing contributor to our overall growth. We historically have added around 1 million lives a year to our business, and that's not small. It's about 1% of the addressable market for us, not insignificant. The relationships are now getting deeper and stronger, and that's sort of the part of what we called out with our segment partnership. And as a result, we're starting to get, which is our first full year with that partnership in terms of the sales year coming up right now and we're seeing more traction with that. And I believe that, that will add incremental value in the form of pull-through and overall lives added, but we'll see how that plays out. It's those types of relationships that we're going to continue to deepen with the payers around the countries, the Blues regional payers et cetera, and sort to repeat that level of engagement with those partners to be able to help accelerate incremental lives. It will also help as we continue to roll out. We're only in a first few months of go-to-market in our Progyny Select product. And those relationships will help in that area as well.

I'll get to the Progyny Select in a couple of questions. I guess before we get there though, one of the things I thought was most interesting about the call as you talk about the selling season and how strong it was more RFP activity relative to a year ago. But then also, 2 of your largest clients up for renewal have already committed to renew. So you're seeing, at least from our perspective, the market seems to be coming more toward Progyny and then your current customers also aren't looking elsewhere. And so there seem to be a confluence of tailwinds there that are really, really positive. When it comes to those 2 large clients that are up for renewal, I guess, first, they've already committed to renew. I just want to verify that. And then can you talk about what industry those clients are in? And then is there a typical time line for when larger clients indicate their intent to renew during a year?

Yes, I'll try and hit all those I missed one, just let me know. I'll do the time line first. Generally speaking, if they're going to go through an RFP process or a market check, it begins about now, maybe 30 days ago. And last different periods, but through the summer, if you will, middle of the summer, sometimes later in the summer by the time they finalize their decisions. So it's as long as an RFP, we're going through with the new prospective client as it is with an existing client. It's just generally how long RFPs take their iterative in terms of their steps and the number of people they have involved, et cetera. As it relates to these 2 clients, yes, they notified us they were scheduled. We had an indication from them that they were going to do a market check this year. And they came to us already and let us know they're not going to do that, and they're continuing on with us, which is very positive. And we're also having positive conversations with them around some expanded products that they don't have with us today. So that's really positive. I forgot what the other question was.

The typical time line for when.

Yes. It's sort of like I said, it starts about now maybe 30 days ago. So let's call it, beginning of April and it stretches out until July, August, sometimes September is probably late depending on if they're larger, but by August, they would have made a decision.

Got it. And then as it relates to -- again, it seems like there's more RFP activity, but these 2 clients are staying. You mentioned a lot of different reasons why maybe that is the case around just sort of the benefits of Progyny and some of the outperformance versus traditional fertility services. Is there anything -- and then also you're expanding the products that you're offering as well. As it comes to these 2 customers, is there anything specific you could point to other than them just being satisfied customers?

So they've done last year in different ways, they've done a form of a market check already, even if it wasn't a formal RFP. One of them explicitly said that to us that that's why they're not. The other one just said they sort of related to the review they've done, they didn't feel the need to do a market check.

Got it.

Look, I think just adding to it, I think one of the things that you have to remember is we are in constant sort of contact with all of our customers on a quarterly basis. And I think we give a tremendous amount of reporting to them about what's happening within their program, including cost as well as value. And I think so reinforcing that value message on a regular basis helps get them comfortable with the program that they have and I think helps obviously obviate the need to go out and do market checks when they already understand it quite clearly.

That makes sense. And then going back to the Progyny Select, really exciting market expansion for Progyny. Would love to get a sense of what you're seeing initially when we should get kind of more, I think, the SMID businesses typically follow up in the fall or late summer, you correct me if I'm wrong there. And then talk about the competitive landscape or lack of competitive landscape in that space. And so what are you seeing there and talk about the competitive landscape?

Sure. So relative to progress, we start there. We've been signing up distribution partners and are now in the process of what I call pull-through, but essentially working with them their producers and ultimately, the brokers that are in their network that ultimately interact with these small businesses. These small businesses generally materially our January 1 plan years and generally go through their renewal process a shorter cycle and they go through their renewal process for their medical plan in the -- I'll call it, middle to back half of the fourth quarter in terms of commitment. So we won't see the actual pull-through in any meaningful way until that. But the progress around the partners that we're signing up and the effort that they're putting in to educate their network and their folks is positive to date. And so relative to where we are early in Progyny Select's go-to-market life cycle, if you will. I'm pleased with the progress we're seeing so far. Relative to competition, there's no other plan out there that's filed from an insurance perspective, the ability to have a supplemental plan in the country as far as we can see, the attorneys go through, as you might imagine, the searches. So unless you're in a mandated state and your health plan for your fully insured population is offering you something relative to that mandate. There isn't a stand-alone supplemental plan competition for for Progyny Select.

And then shifting gears a little bit. As you think about the current state of the self-insured employer in general, utilization across both medical and pharmacy is high and maybe a little bit higher than it's been historically. As we think about the white space here and getting the not-nows over the finish line, can you talk about how the conversation has evolved over the past couple of years? And what is the appetite in the current selling season for the white space? How does that compare to maybe the past couple of years?

Underutilization burst?

Yes. Look, the one thing I'm just addressing on utilization. So a good healthy quarter this quarter, generally in line with what we were expecting -- obviously came in close to the high end of our guide. So our expectations all sort of ran with that. But again, within the range of of expectation over the last several years, anywhere from a 0.45 to 0.49. We were at slightly towards the higher end of that. So we're pleased that utilization and consumption has remained relatively consistent, certainly over the last 5 quarters or so, helps us provide a good foundation for our guidance and what we're seeing currently and for the balance of the year. And I think from white space, obviously, you can talk more about it, Pete. We talked a little bit about greenfield, brownfield and Pete's earlier comments around the sales pipeline that you can.

Yes. So demand continues to be positive for both white space and for both brownfield and greenfield in terms of the space. There's still a significant amount of companies and across broad spectrum of industries that don't offer the benefit at all. But even the brown space is a huge opportunity because a lot of those are limited in terms of what they're covering versus a comprehensive cover benefit like what you would do with Progyny, right? So both are huge opportunities for us and continue to be positive conversations. Sometimes even with the awareness that we've created now for the need for a fertility benefit over the last 10 years, sometimes there's still a little bit more of a conversation as to why you should be doing this. When you hear noise in your employee base for not having it. And we still have to do a little bit more education there, but it's not as much as it was in the past, but still a positive. And here's the reality, the companies that aren't covering it with the trend -- the macro trend that I talked about before, you can only be able to ignore it for so long. The range of folks that we think that engage with our benefit are 30 to 42 years old. They're our millennial population. They're a large portion of your employee base, a really important portion of your employee base. and they have this need. And so to continue to ignore, I think, is not possible. It's just a matter of when you go to add the benefit yourself and also get educated on the reality that you're already paying for it in some way or a portion of it. So there's a lot of cost avoid that's on top of it. They're going to be able to do and redistribute your money across more people needing to benefit versus paying for high-cost claimants in the form of premature birth or [indiscernible] and that kind of thing.

That's really helpful. And then one of the things we've talked about in the past is GLP-1s and how that may impact -- how employers that currently don't provide fertility benefits might be thinking about expanding the benefit. So just to level set here, over the past 3 years, spending on GLP-1s from a self-insured employer perspective has exploded. I don't think anyone would dispute that. But what we've seen -- and so expectations in '24, built into '25. And I think in 2026, expectations for GLP-1 spend have been really high. But what we've observed in the early part of 2026, is that a lot of that volume for GLP-1s is actually flowing outside of the employer benefit towards direct-to-consumer. So it's possible that employers are seeing a lower trend, at least in the beginning of the year relative to their expectations. As you think about the 2027 selling season, clearly, something is going on that's positive in terms of demand for fertility benefits. My question to you is, are you seeing some of these not now or some of these employers who may be -- are they telling you that, hey, our GLP-1 spend is falling below trend. So we're actually now able to commit to a fertility benefit whereas we hadn't in the past. I'm curious if that is something that's coming up in your conversations? Just any type of context around that would be helpful.

Yes. Unfortunately, it's not as explicit as that. I wish it was. But there's -- it feels like a little less mind share around GLP-1s, a lot more focused on sort of how to contain that cost and different types of ways to implement your benefit in order to contain that. And I think you're right, the proliferation of D2C in GLP-1s is going to cause more companies to decide whether or not how much of GLP-1s are they going to cover or not because now they're affordable for people on a DTC basis, and we'll address other areas. So although nobody is saying last year, the year before, because of GLP-1s, we were holding off on fertility, the fact that there's less conversations just in general around that suggest there's less mind share vis-a-vis what it was recently and possibly could be one of the reasons why there's more activity.

I think part of it, too, is the ROI, right? So on the GLP-1, there's down the line ROI that you have to sort of buy into. And I think we do a really good job of demonstrating like current ROI on your spend. Pete's already kind of referenced it in some of his comments, the leakage that employers already have whether they're paying for portions of the fertility procedures, massed is something else in their current plan, even if they're not offering it or certainly the costs on the back end with preterm birth costs, NICU, et cetera. I think we come in with a really clean story around ROI. And I think by comparison, it's sort of buy the future or buy the today. I think if you're looking at a fertility benefit that can help control cost today, I think that's where we're resonating.

And to kind of piggyback off that, you've expanded into new products. menopause, postpartum and leave, benefit navigation, I think 20% of your current customers have added a new benefit and 40% of new have added. Can you talk about the momentum or what you're most excited about when it comes to your new offerings that are now more than a year old?

Yes. I think, it's important to have solutions that address a larger portion of your employers population, right, and address specific needs that they're concerned with and in the case of a lot of these benefits, they're either addressing areas where you could help bend the cost curve and some of the trends that they're seeing or just filling a need in terms of a gap relative to access to care. In the case of leaving embedment navigation, amplifying many good things that you're already doing for your employees, but them not realizing it with sort of more traditional tools and utilizing tools that could help them better understand, better appreciate, better use, all the things that you're offering to them, all have different features that are positive for the overall experience of the employee and the good that the benefit managers are trying to do for those employees. And so I think the general excitement that they are all touching and addressing parts of family building and overall women's health is also really positive. So they've been resonating really well. We have a lot of really good healthy conversations with our existing clients and continue to talk about what we're doing whether they have the benefit or not, what's on our road map for those products or whether or not they were going to add them, but all really positive conversations vis-a-vis their road map in terms of what they want to do for their benefits and what we have to offer.

Going back to utilization for a minute. Mark, given 1Q came in so strong, can you talk about the key variables to get to the high end? And then what would need to happen embedded in each as far as your guidance is concerned around utilization?

Yes. So we're following a very similar guidance philosophy that we've been using here for the last 5 or 6 quarters or so. So we anchor what we're seeing today, the activity, how we're seeing clients and their journeys progress from Q1 to Q2. That's embedded within our Q2 guide closer towards the higher end of our guide. And therefore, that projects on to the higher end of the guide for the balance of the year. The lower end reflects incremental variability at a level that considers some of the variability that we had a couple of years ago. So that way, we've got a range that sort of incorporates some of the changes in human behavior and patterns that could happen through the year. But again, what we're seeing today and the activity that we're seeing today would skew a little bit closer towards the high end of the range than the lower end.

Okay. That's great. And then to move on to margins. You talked about planned investments to expand the platform's capabilities, member experience, et cetera. Can you just provide some examples of where these investments are going and how to think about either the ROI or the improved member experience.

Sure. So it's everything from the back-end platform to be a more efficient company that's today multiproduct where we started out as a single product company, right? So everything we built originally was built on the back of a single product platform, and that creates some level of both tech debt as well as difficulty in adding capabilities from a timing perspective for engineering, right? So that back-end platform investment is huge and will give us the ability to add capabilities and [indiscernible] new products and getting the market a lot faster. That's one. Two is that platform is built with both interoperability as well as with the ability to leverage AI so that we can augment what all the care management folks are doing whether they're on the provider side as they do provider account management and interface with the network or whether they're on the member side as they're engaging the Progyny [indiscernible] engaging or the clinical educators are gauging with to patients, they're going to be able to do that in a much more efficient way and spend a lot more time on their medical journey and sort of what they're talking about, there versus sort of like everything removing administrative sort of task. I could call it on work from the members play [indiscernible].

And from an ROI perspective from an ROI strategy our strategy is not to the level of [indiscernible] in particular, our care avenues are having particular or advocates are having a present value that we see that as part of about empowering them in -- so for us, day-to-day job. So for us, it's cold financial terms. It's about avoid management hiring, it's about waiting future recurring to as opposed to how change in.

SP1 That's a good pivot to next question think about as you think about the cash statement of the business obviously profile you generated a lot about or think about the opportunity you did historically small deals done there deals do some are there opportunities something you kind of or are you very small deals very very small dense -- just curious in buying back shares just curious out there as evolve the thinking around there has evolved at all?

Thinking has involved maximizing shareholder value. You're right, the acquisitions we've done or what I'll call smaller tuck-in acquisitions, meaningful and adding value already despite their dollar size, if you will. We haven't identified anything of size that makes sense. Valuations continue to be nutty in certain areas. And so we wouldn't do in irrational acquisition for assay doing it. We'll build de novo and we're perfectly fine with that. But if something presents itself, we'll take a look at it. We believe it's going to at shareholder value. We believe that's either accretive or a clear path to being accretive, we'll look at it, but nothing has presented itself to date relative to that type of stuff. So we'll continue to do what we do, which is maximize shareholder value. And if that means returning value to shareholders through things like buyback programs, that's what we'll do in the interim with the excess cash that we're generating.

So with the last minute or so, as we talk about your business, 99% retention rate, the industry is growing high single digits. Your selling season is going well. Yet the public market valuation, at least from our perspective, seems pretty disconnected with the growth that you've been putting up. I guess what do you think investors are missing the most about the Progyny story?

I think honestly, they're missing the big picture opportunity that Progyny has. The macro trends that continue to drive our business are growing, not declining. -- the opportunity relative to all the different areas that we're addressing is still in its early stages. We couldn't be better well positioned both from a technology standpoint, from a network and relationship standpoint and continue to increase the size of the moat vis-a-vis competitors in terms of -- with all of our investments. And on top of that or adding new products that are continuing to increase our TAM, I think all those things are really positive and I kind of feel better about where we are.

Sounds great. It looks like we are out of time. Pete, Mark, thank you so much for the time, and thank you, everyone, for joining us.

Thank you.

Thanks for having us.