Morning, everybody. I think we're still in the morning. This is Travis Steed, the Bank of America med tech analyst, next stop, at our Vegas conference, we have GE HealthCare. We have James Saccaro, CFO, Philip D. Rackliffe, President and CEO of Advanced Imaging Solutions, Carolynne Borders, Vice President of Investor Relations on stage. Thanks for joining us.
Thank you, Travis. Appreciate the invitation to the conference. It's nice to see those in the room. Thanks for the interest in our company.
Great. Maybe just to start out, you know, coming off Q1, the guide reduction, maybe just higher level, kind of level set us kind of post Q1, you know, where things stand?
Obviously a disappointing first quarter, right? We ended up having to lower guidance for the year, which is something we take very seriously. And for us, there were just some very dramatic inflationary costs that we're faced with, that we had to reflect in the guidance going forward to put the appropriate level of risk into the guidance. Having said that, we are very optimistic about many aspects of the business and the long-term potential that we at GE HealthCare have. It begins with, in the first quarter, you'll note that we grew orders a little over 1%. That was against a 10% comp, very good performance from an order standpoint. From a sales standpoint, we came in at the high end of our expected range. From a commercial standpoint, things are operating well.
You'll note in the investor materials that we shared, on the earnings call, there was a slide that we included which reflected the pipeline and when we anticipate things launching. The pipeline has moved incredibly well with almost all of our products in line with expectations, so we really have set this up for great long-term potential. We didn't spend a lot of time on the call emphasizing our management system, Heartbeat, but we made tremendous progress on that aspect as well. As I look to the future and I look at really, the long-term potential of the business, you know, we feel really quite good, but, you know, as you point out, we did have to reduce guidance as a result of some of the challenges that we faced in the near term.
There was some stock buybacks from management and board of directors. I don't know if you want to address that and what drove the change to buy stock.
I can't speak for the others. I don't want to speak for personal investments of leaders, but what I will say is, in the first quarter of this year, we repurchased shares at around $70. When we repurchase shares, we do so based on, and we have an intrinsic value model, which is a discounted cash flow, and we compare that to the price of the shares. You can imagine, after the shares sold off, very substantially, relative to our intrinsic value calculation, the shares represent even a more substantial buy than they previously did. Why is that? The long-term fundamentals are intact, and this is just a short-term issue that we have to navigate for, and will reflect in price and so on. Once we've done that, the long-term value is very much intact.
I think that the other leaders on the team looked at the share price and perhaps did the same math and said, "Hey, these represent a great opportunity." I, you know, and we don't report on buybacks during the quarter. We wait till the 10-Q, so I'll point you to that when that's filed.
Buybacks is still kind of an ongoing strategy for capital deployment?
Absolutely. It represents Like I say, for us, from a capital deployment standpoint, 1st, we want to reinvest in the business to accelerate growth. 2nd, we have a lot of good programs and all of that funding of R&D over the last several years has paid huge dividends in the pipeline that we have now, right? Reinvest in the business. Number 2, targeted smart M&A. In the 1st quarter, we closed Intelerad, which will represent a great deal for our company going forward. I'm so excited about how that is strategically accretive, but also financially accretive. It hit all of the marks. Once we do those 2 things, we also have opportunity for share buyback. In the 1st quarter, we did some buyback. Stay tuned on the 2nd quarter.
As I say, I think the shares represent a real value at this point. We'll continue that, and then of course, we pay a dividend as well.
Okay. That's helpful. There was also a change to combine AVS, the Advanced Imaging Solutions business, with, you know, AIS into AIS. Just the rationale for that change and kind of what made that change.
Sure, I'll take that. Hey, Travis, thank you very much for the question. As we thought about, first, how are customers buying? Where is the market going to? Where are they evolving to? They're evolving to a more customer-focused care continuum that runs horizontal. What we saw within our own company was an opportunity to actually go get that and meet a customer where they're at as we think about larger enterprise deals. Where that is at is that a patient comes in and gets their very first scan, and that scan is detected, and you have a lesion. That's diagnosed. That has to go into a step of pre-procedural planning, and then you need to go to an intervention or a theranostic or a therapy.
We have a unique opportunity at GE HealthCare to very much differentiate ourselves because we have such good products across the modalities. The opportunity now is to actually think horizontal into more solutions with data, with AI, in order to increase efficiency and workflow for healthcare systems and ultimately look to improve patient outcomes.
That's helpful. I also wanted to ask on PCS, there was like, I think Pete alluded to on the call, strategic assessment in PCS. Just kind of curious what that referenced and what's going on in PCS.
Yeah. The PCS had a disappointing 1st quarter. It was largely expected. The way that their order sequences have, sort of emerged, we have a lot of things being delivered in the 2nd half of the year. That was as expected. You know, we're launching a new product, a Carestation product for anesthesia. It should be very well-received by the marketplace, but that too is a 2nd half launch. The 1st quarter was largely in line with expectations, but I will say, you know, an 8% decline with the margin that that business printed is not an acceptable threshold of performance for our businesses going forward. What Pete said is, you know, we're looking at strategic alternatives. Obviously for us, there's an intense focus on the fix.
All activities are underway to kind of get that business going in the right direction. We should start to see that pay benefits in the second half of the year. Then, just evaluating all of the different component pieces, what kind of role this plays at the company. All of those elements are things that we're looking at related to PCS.
Are there a lot of synergies in that business between the other businesses?
There are some, but it is not as linked as, for example, ultrasound and imaging as you see by the announcement today.
Right.
Well, interestingly, what the changes that we've made allow us to do is really shine a spotlight specifically on PCS. You can see it's separated from the other businesses. It's discrete, we really can shine a spotlight and watch that business improve.
Assume it's a lower margin business?
Well, it is a lower margin business. We have plans to improve the margin, and the margin should improve over the course of the year. Relative to imaging and ultrasound and this new combined business and relative to, of course, PDx, this would be the lower margin of the three.
Okay. Thank you. I do wanna kind of address the big topic, you know, inflation. I think the thing that most investors are wondering is why, you know, they're big numbers, you know, in terms of total dollars. Why is GE HealthCare seeing it and, you know, others aren't?
Yeah. I think, I think some more recent reports have indicated inflationary impacts on their financials, we've started to see that. Looking at med tech specifically, you know, we have a different portfolio, right? Our products are, highly engineered, products that have components from all over the world. You know, they're very substantial pieces of equipment for the most part. It's more exposed to things like, rare earth elements. It's more exposed to freight costs as we ship them across the world. Taking a step back, in the first quarter, you know, we had two things occur that really changed the profile of our inflation forecast. The first, was the war in Iran. Essentially what happened is, you know, you had oil costs go up substantially.
Much of our freight costs, our fuel costs, jet fuel, you know, all of that sort of substantially increased. That was about $100 million impact from freight and logistics costs. We also saw, as a result of this conflict, a $50 million increase in other areas. Things like, for example, helium, was one component. There was a key helium facility in Qatar that was destroyed as a result of the conflict. That added some incremental costs. That whole package of items, was about $150 million, and it was very much related to this Middle East conflict. The second component, you probably read about this this weekend in the journal, is memory chip inflation. You know, we've seen extraordinary increases in this cost category, and it's impacted both our AVS and our imaging lines, pretty substantially.
We've seen $100 million increase in a cost category that was much smaller than that last year. Now, we're weathering the storm. We're navigating this in a couple of different ways. For 2026, we've put in place some cost measures to offset. We also have some pricing, but those benefits will even more substantially impact 2027.
I think another question that I get is, you know, you've had to a lot of headwinds and margins with tariffs come through. You've had to offset some of that. It's just harder to offset some of these inflationary pressures. You're just gonna have to just take the All the tariffs?
If you look back over the last 2 years, we've had 2 substantial impacts. One is tariffs, and that increased our cost structure around $250 million. The second is this inflation related to the items that I described moments ago. That's another $250 million. Right? Despite $250 million in tariffs last year, we still were able to grow EPS. Despite $250 million in gross inflation this year, we are gonna grow EPS mid to high single digits this year. I, you know, I kind of take a step back and say, yeah, we've absorbed extraordinary situations over the last 2 years. I do think the business has shown some level of resiliency despite that. As we move to next year, we will have more degrees of freedom in terms of pricing.
Many of the cost initiatives that we're starting now will pay larger dividends, so I'm hopeful that we'll be able to offset a much more substantial portion of the gross inflation that we've experienced this year into next year.
Okay. And I think a lot of people look at, you know, one of your competitors, their imaging business is 21 and low 20% margins, and your imaging and AVS margins are kind of mid-teens. Is that still an opportunity? I don't know if you've I'm sure you look at peers and comps on margins. Just trying to think about, is that kind of the opportunity for this business still?
Yeah, we still have a great opportunity from a margin standpoint to close that gap. What it comes down to is a few things. First, this Heartbeat business system, how we operate the business in a lean manner, is one key element to a lot of different things. You know, more successful sales execution, more successful new product launches, but also, our margin program. The new products that we're launching, many of them, in fact, virtually all of them I should say, come at a higher price with a lower cost than the predicate. If you know, Phil can tell us all about Vivid Pioneer, which is a remarkable product for cardiac ultrasound. It is doing extremely well.
It's coming in at higher prices and lower costs, it really is a wonderful element to the P&L when we launch those products. That innovation super cycle is happening now. We're sitting here, you know, the second half of this year will benefit to some extent from it, as we move into next year, there will be much more substantial benefits from some of these new innovative products on the margin profile of the company. Finally, just general cost discipline is an area we're intensely focused on. That will also play out as we move into next year.
On the memory side specifically, there was $100 million increase that you put in the guidance. I mean, even since then, there's been, you know, some issues on terms of supply and strikes and, like, some questions on where prices are going higher, you know, is there supply constraints? Just trying to think about what you factored in and ways you can kind of mitigate if those prices go higher or there's actually supply constraints in the memory.
Sure. With respect to memory, what we did was we took current prices, we assumed that they would exist for the rest of the year, then we added some buffer on top of that, then we added some incremental contingency, just general operational contingency. We do have multiple layers to protect us against incremental costs. Incremental reductions should flow directly through, incremental costs, you know, we should be able to offset a portion of that before we run into a challenge.
In terms of supply, do you have supply locked in for a certain amount of time or?
We do. We do. We're you know, actively working with our suppliers to access incremental supply. We haven't seen this as a challenge to date.
Okay. Same kind of questions on helium and some of the other rare earth materials.
You know, helium is up, you know, millions of dollars, right? It's in that $50 million category. We were not supplied, I believe, for the most part from the Qatar facility that was destroyed, but it did disrupt the global marketplace. We haven't seen shortage situations. The price is up quite a bit, but it's a very small component in the overall cost of goods profile of the company, which is why we haven't called it out as this discrete driver.
Most of our helium that we secure is not coming from the Middle East.
Okay. In terms of, like, pricing actions, you know, you've had CPI up today. You know, I was just curious if there's ways you can think about offsetting some of this through pricing and also how to think about the backlog. You know, is there flexibility on the backlog that you have on pricing?
Our ability to reprice the backlog is more limited. Our ability to price new orders is wide open. You know, here's the thing, our costs at this moment in time have structurally changed versus prior. We're reflecting that, in all of the decisions that we make with respect to new business orders, and we're reflecting new prices as a result. We have to. The good news is, we sell great products, and those products are becoming more innovative. The compelling nature of that value proposition, we believe is still there, but we do have to reflect the higher costs that we're faced with.
Okay. Maybe skipping back to the revenue side of the top line side. You put up 1% order growth on a comp that, a 10% comp, like a big, big, tough comp there. Just kind of curious what drove that, and I assume we should see accelerating order growth over the course of the year?
Yeah. We expect to see higher growth than 1% through the rest of the year, certainly given the very, very challenging comp that we had last year. I was pleased that we grew over 1% in the first quarter. Now, here's the interesting thing. Over the last year, much of the strong order book that we put together was more about commercial execution and winning in the market than it was about new products. That was the reality. Even into the first quarter, the majority was existing products that we're selling. Now, there are a few in our ultrasound business, for example, I referenced 1 already, but there are a few where we've seen, you know, the new products start to bolster the order acceleration, but it's not really meaningful yet.
That starts to pick up in the second half of the year, and it's even more pronounced as we go to next year. Over the midterm, we're expecting to grow sales mid-single digits. We guided, we did 3.5% last year. We guided 3%-4% this year. What that means is there will be a step up, and so we'll start to see that in the second half, but then also as we roll into next year.
Okay. Then maybe, Phil, bring you in a little bit. You wanna talk about some of the innovation of the portfolio and the 10 new products you're launching?
Yeah, I think all the money that we put forth since spin and over $3 billion in investment, that is starting to pay off. What you're seeing now is. The most exciting new product innovations that we've ever seen in the future in this next decade than we've ever seen within GE HealthCare. It's not just one product category, whether it's CT or MR, ultrasound, or image-guided therapies. It's well-balanced. You have material new NPIs hitting across every product modality over the next 6 to 18 months. We're beginning to see this innovation cycle really pay off. It's very exciting. Plus you add to that we're meeting customers where they want to be met with the formation of AIS, also gives us an opportunity to platform better and to think more better horizontally.
You have this element of both great product, new products coming out in each of the modalities, and then also horizontally, how do we best operate to meet customers where their needs are? Those two things together, we're in a very good position based on the investments that we put forth the previous three years, and frankly, are continuing into the future.
On photon counting CT, do you think about that as like a share taking ability? Is it upgrading your existing install base?
We see it as a blue ocean. I mean, I think there is a new area that we are going to enter into, and we have the ability to see what has been out there already. Yes, we are not first to market, but we're able to see how others are differentiating themselves so that we can pick our spots with a differentiated offering and enable ourselves to win. I don't think it's actually as much cannibalizing our own installed base as it is going out and getting new pastures.
What else could you talked about getting sites ready to building the pipeline. Can you elaborate on kind of what all is involved in that for photon counting CT?
Can you repeat the question?
Yeah. You've talked about getting sites ready and building the pipeline for photon counting CT. Just kind of elaborate on that.
Yes. I mean, so far as of date, I didn't check it, this morning, but as of last week, you know, we had a funnel of well in excess of $100 million already, and as of a potential funnel. As we just got approval, we're beginning to have the discussions with healthcare systems now across the course of Q3 and Q4, and we'll begin to see that convert into revenue as we get into the back half of 2026, but also 2027.
Okay. You expect kind of revenue contribution from these key new products in the first half 2027, right?
Correct. It's much more beyond than just photon counting. There are other highly material products. That's one product in one category. There are very material differentiated products across many modalities that are coming out.
You're seeing that in the orders and backlog coming in?
For sure. I mean, we bring up Vivid Pioneer a lot. That product has done exceedingly well, well better than what our internal estimates were. We'd like to continue that momentum across other modalities.
Okay.
Travis, we talked on the earnings call about, particularly for imaging, when you think about sales funnel to order is typically around five to six months, and then order to revenue is typically another five to six months, if that's helpful as a frame of reference.
It is. When you just think about the overall imaging market, kind of your share position, are you share taking, share losing? Kind of just a state of affairs on the market in itself, and just anything that you'd call out that's changing from a market standpoint.
The market in general for imaging continues to be strong. Just to be reminded, right, the ability for a healthcare institution to understand the detection is a critical care pathway component of being able to treat that patient. We continue to see imaging market growth strong, and it will continue into the future. As far as our ability to take more share vis-à-vis the competition, I think we're doing well, and we're continuing to expand.
Okay. On just the overall capital environment, you know, there's obviously some question marks on ACA and utilization and what that means for hospital budgets, and kind of mix on healthcare. I don't know if you're seeing customers and capital spending thinking about things differently or not.
We do a survey every quarter. I know you do as well. Our survey continues to be very, very strong. Our top customers are still interested in investing. You know, hospitals are very profitable at this moment in time. Utilization rates are great. Overall, you know, we think it's a good backdrop from a capital standpoint to continue to launch these new products into.
Okay. Then China, just kind of state of affairs in China at this point.
Look, we've done a lot in China to revamp or enhance our operation. It started with bringing in a leader, Will Song, who's done an amazing job, and really what he's focused on is commercial go-to-market, also government affairs, making sure we have the right, you know, targeting of different segments, and the results have been actually pretty good. We're enhancing win rates in the market, which is great to see. We're also seeing a more constructive backdrop overall in the economy. We've budgeted China down, that we're not changing that expectation at this point. I will say we're starting to improve the predictability there, and we're also starting to be successful from a win rate standpoint, which is just great to see. Now, Phil was there, I think two times in the last month.
Phil, you wanna add anything from your perspective on the ground?
I would not suggest to do that, Jay. What I would say is that in general, when I was there recently, the sentiment has stabilized, and I think we've met with a lot of senior people, party secretaries. We have a large footprint there as it relates to thousands of people, many manufacturing plants.
We still think it is a very good growing in the biggest healthcare market that is coming. How we actually are going to address that, we're a very focused strategy that will come in. We really honed in our clinical astuteness and being able to pick our spots on where we're going to play and not play, also working with JV partners along the way.
What, that's some of the kind of the green shoots we're talking about was the win rate in China?
That's right.
Okay. Now maybe moving over into Flircado, you're seeing some progress there, versus kind of January and just understanding kind of what you're the some of the kinks you're working out in the workflow and how things are going with Flircado?
Flircado has been going great. We're thrilled with the progress that team has made over the last several months, really over the last 6 months, as we've, you know, gone into full launch mode of the product. From a rate standpoint, I think we were at around $25 million in annual run rate. It's bumped up to about $46 million run rate 1 quarter later. Really good performance over the course of the quarter. We're very focused on continuing to drive that on the way to $500 million plus in revenue by 2028. Now, interestingly, there are essentially 3 different elements in play to optimize the launch. You have to make sure that your customer economics are solid. They understand the reimbursement pathway. You have to make sure that you have the manufacturing workflow correct at the radiopharmacies.
Finally, you have to make sure that in the facility, the facilities are optimized to open up adoption of Flircado. What was heartening for me in the first quarter was not only did we see new customers, which you would expect to see, but also we saw very good and solid ramps at existing customers. You know, I had the opportunity last week to travel around New York City with a dose of Flircado. Basically, we started at PharmaLogic, which is one of our suppliers. We saw how that was made. We watched it. It's a very complex process. A company like that is supporting us with very high production rates, successful on-time delivery rates.
Mind you, when you launch this product for the first time, new batches are hard to make, and you have to learn how the product works and learn all the nuances of the specific product. PharmaLogic is doing a great job supplying us. We took the dose and then went to NYU to see it delivered in a cardiac imaging center. What was interesting for me is there are so many little pitfalls in the process that could exist that could disrupt the successful adoption of Flircado, and it's up to us to help our customers work through those, because each customer is unique in some way.
At the end of the day, there is a standard work opportunity for us, and this goes back all the way to our discussion of Heartbeat, helping our customers optimize their process so that they can open up the flywheel of the adoption. That's exactly what we're doing with them. As we think about the 3 barriers, reimbursement, supply chain, and then also customer adoption, customer workflow, we feel great about what we've been able to do in the quarter. Let's see what happens in Q2.
I assume there's kind of the balance between utilization at sites and adding new sites, and they're kind of two different ways to grow. When you think about the growth in Flircado, is it more of a linear ramp to the $500 million, or is there a point where you get an unlock and kind of can go more asymptotic?
Let's, let's see. We've stopped short of giving Flircado guidance. We did commit this year to give a number each quarter representing, you know, an illustrative week for doses. We'll do that again. You know, as far as the adoption rate, we're very focused on thoughtful adoption. What I mean is we're not adding a bunch of customers unless we know those customers will have a good experience. If we know that, we'll bring them on board. If we don't, we're gonna be hesitant to add them to the roster of customers. So far it's been playing out very well. We are adding customers at a good pace.
At the same time, we're also ramping existing customers, which is exactly what we want because at the end of this, the 2026 Q1 number is not important in the context of what we're trying to do. What is important is that we have successful adoption and great customer experience, using this novel new program.
Okay. That's helpful. I forgot to ask one question. The margins just kind of a this year question. Gross margins 13.5 in Q1, stepping up to 17%. Sorry, I said that wrong, but there's the second ramp, half ramp in gross margins. Just want to understand like the ramp there.
Yeah. Second half margins will be higher than the first half margins for a few different reasons. First, normal seasonality. Q4 is typically our biggest quarter with the highest margin. Second, the benefit of the new products from a sales standpoint, we do start to see more benefit in the second half than the first half. That's another driver. Third, you saw us with a $90+ million tariff number in Q1. That goes down by the fourth quarter of the year, it's another tailwind. Now, offsetting that, we have the inflation, like I said, we have that sort of baked into the math that supports the second half acceleration.
Okay. Anything else that you want to end with before I end, close?
No, I think we hit it. We're incredibly excited about what we've put in place from an innovation standpoint, from a management system standpoint, our Heartbeat business system, now it's about accelerating and navigating a very volatile world.
Okay, great. Thanks a lot.
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I don't know, of course. I just wanted to make the obvious increase for us activity in the last year or prior year. I think if you look at our system, look at sustainability of our system, demonstrate the client satisfaction that manifests itself. I know, in our 10 years, that's really positive. He also points out on the call the good example that a large company presents with us across their third-party component they have on average over an 8-year period. Every table still relatively doubling. I mean, it's great by being relative to their pre-term versions. Bunch of other really important facts, the favorable outcomes that we continue to get at the best. You know, they wish they could talk about all their benefits.
Increased clinical outcomes, and that's exactly what they're looking for all their benefits.
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 years, clearly the trajectory of the market opportunity has evolved. 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. are a higher proportion now that are over 30 versus under 30. 53% of women that gave birth based on the latest CDC data were over 30 versus under 30. Within that, even greater, you know, is the 35 and over. The average age of a woman going through IVF is 36 years old. 35 and over continues to grow at a compounded rate of, you know, above 2.5% over the last 10 or 11 years, right?
On an overall basis, the demand driven by the macro trend is increasing. The overall industry continues to grow at a roughly, you know, 9, 10% compounded rate per year. Will 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. As it keeps being more pronounced, it's gonna drive that need even greater and greater.
That's great. The industry growing 9%, 10%, and also your revenue is starting to diversify in a few different ways. You talked about the Cigna partnership as 1 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? Is it fair to assume, you know, 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 it. The distribution partners that we're signing up and doing business with are a 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, you know, part of what we called out with our Cigna partnership. As a result, you know, this is our first full year with that partnership in terms of a sales year coming up right now. We're seeing more traction with that.
I believe that that will add incremental value in the form of pull-through and overall lives added. We'll see how that plays out. It's those types of relationships that we're gonna continue to deepen with the payers around the country, the Blues, regional payers, et cetera, and start to repeat that level of engagement with those partners to be able to help accelerate incremental lives. It'll also help. We're only at the first few months of go-to-market in our Progyny Select product. Those relationships will help in that area as well.
I'll get to the Progyny Select in a couple questions. I guess before we get there, though, one of the things I thought was most interesting about the call is you talk about the selling season and how strong it was, more RFP activity relative to a year ago. Also 2 of your largest clients up for renewal have already committed to renew. You're seeing, at least from our perspective, the market seems to be coming, you know, more toward Progyny, and then your current customers also aren't looking elsewhere. There seem to be a confluence of tailwinds there that are 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 wanna verify that.
Can you talk about what industry those clients are in? You know, is there a typical timeline for when larger clients indicate their intent to renew during a year?
Yeah, I'll try and hit on all those. If I miss one, just let me know. I'll do the timeline first. Generally speaking, if they're gonna go through an RFP process or a market check, it begins about now, maybe, you know, 30 days ago, and lasts different periods, but through the summer, if you will, you know, middle of the summer, sometimes later in the summer, by the time they finalize their decision. It's as long as an RFP if you were going through with a new prospective client, as it is with an existing client. It's just generally how long RFPs take. They're iterative in terms of their steps and the number of people they have involved, et cetera. As it relates to these 2 clients, yeah, they notified us.
They were scheduled. We had, you know, an indication from them that they were gonna do a market check this year. They came to us already and let us know they're not gonna do that, and they're continuing on with us, which is really positive. We're also having positive conversations with them around some expanded products that they don't have with us today. That's really positive. I forgot what the other question was.
The typical timeline for.
Yeah. Yeah, 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, you know, July, August. You know, sometimes September's probably late, depending on if they're larger, but by August they would've made a decision.
Got it. You know, as it relates to, it seems like there's more RFP activity, but these two clients are staying. You mentioned a lot of different reasons why maybe that is the case around, you know, just sort of the benefits of Progyny and some of the outperformance versus traditional fertility services. Is there anything that And then also you're expanding the products that you're offering as well. As it comes to these two customers, is there anything specific you could point to other than them just being satisfied customers?
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, you know, all of our customers on a quarterly basis. I think we give a tremendous amount of reporting to them about what's happening within their program, including costs as well as value. I think reinforcing that value message on a regular basis, you know, 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. 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 mid businesses typically follow up in the fall or late summer. You correct me if I'm wrong there. Talk about the competitive landscape or lack of competitive landscape in that space. What are you seeing there, talk about a competitive landscape.
Sure. Relative to progress, we'll 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, you know, materially are January 1 plan years and generally go through their renewal process. It's a shorter cycle, and they go through their renewal process for their medical plan, you know, in the, I'll call it, you know, middle to back half of the fourth quarter in terms of commitment. We won't see the actual pull through in any meaningful way until then.
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. Relative to where we are early in Progyny Select's go-to-market life cycle, if you will, you know, 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.
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 standalone supplemental plan competition for Progyny Select.
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. You know, as we think about the white space here and getting, you know, the not nows over the finish line, can you talk about how the conversation has evolved over the past couple years? What is the appetite in the current selling season for the white space? How does that compare to maybe the past couple years?
Under utilization first?
Yeah, look, I, the one thing I just addressing on utilization, you know, a good healthy quarter this quarter, you know, generally in line with what we were expecting. We, we obviously came in, you know, close to the high end of our guide, our expectations all sort of ran with that. Again, within the range of expectation over the last, you know, several years, anywhere from a 0.45 to a 0.49, we were at slightly towards the higher end of that. We're pleased that utilization and consumption has remained relatively consistent, certainly over the last five 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. 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.
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, you know, across a broad spectrum of industries that don't offer the benefit at all. 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 covered benefit like what you would do with Progyny, right? 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, in your employee base for not having it. 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. Here's the reality. The companies that aren't covering it with the trend, the macro trend that I talked about before, you're gonna only be able to ignore it for so long. The range of folks that we engage with our benefit are 30-42 years old. They're your millennial population.
They're a large portion of your employee base, a really important portion of your employee base, and they have this need. To continue to ignore it, I think, is not possible. It's just a matter of when you're gonna add the benefit yourself and also, you know, get educated on the reality that you're already paying for it in some way or a portion of it. There's a lot of cost avoidance on top of it that you're gonna be able to do and redistribute your money across more people needing the benefit versus paying for high cost claimants in the form of, you know, premature births or NICU births, and that kind of thing.
That's really helpful. 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 benefits. 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. What we've seen, expectations in 2024 built into 2025, and I think in 2026, expectations for GLP-1 spend have been really high. 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 toward direct to consumer.
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 nows or some of these employers? 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.
Yeah. Unfortunately, it's not as explicit as that. I wish it was. It feels like a little less mind share around GLP-1s. A lot more focus on sort of how to contain that cost and different types of ways to implement your benefit in order to contain that. I think you're right. The proliferation of D2C in GLP-1s is gonna cause more companies to decide whether or not how much of GLP-1s are they gonna cover or not, because now they're affordable for people on a D2C basis and address other areas.
Although nobody is saying last year or the year before, because of GLP-1s, we were holding off on fertility, the fact that there's less conversation just in general around that suggests there's less mind share vis-à-vis what it was recently, and possibly, you know, could be one of the reasons why there's more activity.
I think part of it too is the ROI, right? On the GLP-1, there's, you know, down the line ROI that you have to sort of buy into. 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, you know, matched to something else in their current plan, even if they're not offering it, or certainly the costs on the back end with, you know, preterm birth costs, NICU, et cetera. I think we come in with a really clean story around ROI. I think from by comparison, you know, 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 costs today, I think that's where we're resonating.
To kind of piggyback off that, you know, 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, you know, more than a year old?
Yeah. I think it's important to have solutions that address a larger portion of your employer's population, right? Address specific needs that they're concerned with. In the case a lot of these benefits, they're either, you know, addressing areas where you could help bend the cost curve in some of the trends that they're seeing, or just filling a need in terms of a gap relative to access to care. Or in the case of leave and benefit navigation, amplifying many good things that you're already doing for your employees, but them not realizing it with sort of more traditional tools, utilizing tools that could help them better understand, better appreciate, and 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. 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. 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, and what's on our roadmap for those products, or whether or not they're looking to add them. All really positive conversations vis-à-vis their roadmap in terms of what they wanna 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 to get to the low end? Just what's embedded in each as far as your guidance is concerned around utilization.
We're following a very similar guidance philosophy that we've been using here for the last, you know, 5 or 6 quarters or so. We anchor, you know, what we're seeing today, the activity, how we're seeing clients and their journeys progress from Q1 to Q2. You know, that's embedded within our Q2 guide, you know, 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. That way we've got a range that sort of incorporates some of the, you know, changes in human behavior and patterns that could happen through the year.
Again, what we're seeing today and the activity that we're seeing today would skew you a little bit closer towards the high end of the range than the lower end.
Okay, that's great. 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. It's everything from the back-end platform to be a more efficient company that's today multi-product, where we started out as a single product company, right? 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, you know, for engineering, right? That back-end platform investment is huge and will give us the ability to add capabilities and/or new products and get them to 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 care advocates engaging, or the clinical educators are engaging with the patients.
They're gonna 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, you know, like everything, removing administrative sort of tasks, I like to call it homework, from the member's plate, so that they can, you know, get through the journey a lot faster and a lot easier, right? Those are the positive things. There's also a lot of investment in the digital assets that we're doing.
Finally adding a suite of products to our global offering that address all the same areas that we do in the U.S. in order to make sure that for our customers that are global multinational customers, they can, if they want to, have the same type of offerings that address the same type of areas as they do in the U.S. Because that's a lot of times a complaint that they hear from their colleagues around the world.
From an ROI perspective, our strategy is not to replace the level of human interaction that in particular our care advocates are having with our members. I think we see that as part of the value that we're providing. It's about empowering them and making them more efficient in their day-to-day jobs. For us, it's to put it in sort of cold financial terms, it's about avoiding future hiring as we grow, as opposed to seeing some kind of step marked change in how we're currently supporting our clients.
That's a good pivot to the next question around capital deployment. You know, as you think about the income statement and then, you know, the cash flow profile of the business, obviously you generate a lot of cash. How do you think about the opportunity for M&A? You know, historically, you know, you've done very, very small deals. Are there opportunities to do something larger? Or are you kind of more committed to, you know, very, very small deals, and buying back shares? Just curious if the thinking around there has evolved at all.
Thinking hasn't evolved. The thinking is always around maximizing shareholder value. You're right, the acquisitions we've done are 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, we wouldn't do an irrational acquisition for the sake of doing it. We'll build de novo, we're perfectly fine with that. If something presents itself, we'll take a look at it. If we believe it's gonna add shareholder value, we believe it's either accretive or a clear path to being accretive, you know, we'll look at it, nothing has presented itself to date relative to that type of stuff.
We'll continue to do what we do, which is, you know, 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.
With the last minute or so, you know, as we talk about your business, you know, 99% retention rate, the industry's growing high single digits, you know, your selling season's going well, you know, yet the public market valuation, at least from our perspective, seems pretty disconnected, you know, with the growth that you've been putting up. I guess, what do you think investors are missing the most about the Progyny story here?
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-à-vis competitors in terms with all of our investments. On top of that, are adding new products that are continuing to increase our TAM. I think all of those things are really positive, and I couldn't 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.
Hey, Robbie, it's Wes, 1 2 3 4. Just confirming you can hear me. We have it open, so you should be able to Audio on the primary and the backup. Then if you can confirm the phone too. Check, check. 1 2 3 4 5 6 7 8 9 10. Check, check.
All right, go ahead.
This is Wes in the room. 1 2 3 4 5 6 7 8 9 10. Check, check.
backup and Jesse.
Check, check. Check one two, one two three. Check, check. Check, check. One two three. Check, check. Once we're done testing, you guys can take your lunch break. You know where it is, right behind us here. We're at that first door, where breakfast was this morning. Thank you guys very much. You're not changing any settings, and you didn't start to record the next section until.
No
we start, right? Okay.
Yeah, basically.
Doing the stuff in between and starting.
Thank you. Appreciate it. Check, check. One two, one two three.
Just waiting for a response. You gotta say something.
He I'm talking to Robbie on both primary and backup. We're just waiting for the audio line to confirm they're hearing us good on that as well. Check, check 1 2. What's up, Amber?
Oh, someone might be off radio for a second.
We're Most people are on break except for what's going on upstairs.
Setting up the audio in front, just in case they wanna use the front.
We're waiting.
for Brahms Four.
Yeah, we're just waiting for them.
Okay.
What do you mean in the front?
Just to test the video, if they wanna put their laptop on stage.
Oh yeah, we definitely wanna test that.
Yeah.
We can.
He's setting that up now.
You want us to test that first or after lunch?
No, it's up to you.
Yeah.
He's set, he's setting up.
Yeah. Once I'm done here, I'll go over and take a look. If he needs a break, I can always circle back.
Okay.
Thank you.
Thank you.
That's it? Yeah.
Check 1 2, 1 2 3.
I already did it. Yep, we're all set. Yep.
Check 1 2, 1 2 3. Check, check, check. Robbie, how's your day going?
Not too bad. Just a lot of conferences that are happening simultaneously that I'm having to monitor.
No, the struggle is real. I know about them all. Well, not all, but I know about the bank ones, so.
There's three Bank of America conferences happening today that I'm helping Ryan monitor.
It's always something. You haven't heard back yet about the audio, right?
I have not. Seeing it from, you know, from another way. Some Yes.
He can hear me? 1 2 3 4 5 6 7 8 9 10. Check, check, check.
Good.
Okay, cool.
My audio's good.
These guys are gonna put the music back up slow. It doesn't have to be high 'cause the gentleman's in here working.
It's off.
Oh. Just don't put the music up at all then. Yeah. Then, yep, you can kill the mics.