All right, thank you everyone for joining, and thank you to the Progyny team for coming to our conference. As you guys know, I'm Stephanie Davis. I cover the health tech sector here at Barclays, and we have the CEO of Progyny, Pete Anevski, as well as Michael Sturmer, the president. Thank you guys for coming.
Thank you for having us.
So I've got to start with the guidance question. Told you I was going to. But, you just published your guidance, like, two weeks ago, even if that. And there was a lot of concern about the decline in Q2 and the step down. Can you walk us through that and what, what mix means?
Sure. So, we guided both the quarter and the full year. For the reasons that you said, we called out that there was an aberration in scheduled treatments for the first half of the quarter, where there was, you know, if you look at sort of overall ART cycles , right, utilization was. We'll start with that. Utilization is consistent with prior year. Prior year was up over the year before that. So that's a positive, right? So demand is there. But in terms of the fertility journeys that people are going on, the treatments that they're doing are lower contributing revenue ART cycles than what we would normally see.
We call it an aberration, because when you look at longer periods of time versus a short period of time in the first half of the quarter, there are much more consistency every year, really, since we've been in existence, of what people tend to end up doing. And the reason for that is that, you know, fertility is a disease like any other disease, and incidence and prevalence that's going to drive the journey is going to be the same, relatively speaking, the population is large enough, like what we have. So a short period of time, that's going to impact the top line, we have an aberration, is what we called out. We're already seeing in terms of what's scheduled for the back half of the quarter, the reversal back to normal, right?
So our expectation and guidance for the, you know, Q2 through 4 is back to normal utilization next to what we were seeing for the first half of the quarter. But we quantified it because we felt it was important. Otherwise, as you said, the Q1 versus the full year wouldn't have made sense.
So explain, like, unpack . Is this basically just more egg freezes than the full IVF journey?
That's a good example of it, right? So it's, it's whether it's more egg freezes, whether it's more, transfers versus full cycles, it's, it's whatever those individual people need. But, you know, you have a statistical anomaly in a short period of time that, the mix, if you will, of treatments for those people is different than what you would normally see for a long iteration.
We're going to get a little technical for a second, so I apologize to anyone in the audience. But there has been, I guess, greater research recently that doing a frozen embryo transfer is just as effective as a fresh embryo transfer. Is there any risk that maybe more folks are doing a frozen versus fresh transfer to give themselves a bit of a break after the whole retrieval process?
The short answer is no. The consistency, the reverting back to the median, if you will, in the back half of the quarter, suggests that the normal distribution that we normally see for set of cycles that are fresh versus retrieval only cycles, versus egg freezing cycles versus transfer cycles, is getting back to normal. There's no suggestion that we think that that's going to be different. In terms of effectiveness, I'm not even sure what those studies are. The reality is that it's simply whether you do a full cycle, there's a fresh cycle, where you do the retrieval and transfer at the same time, versus you do a retrieval cycle and then at a later date, do the transfer. So in terms of effectiveness, or efficacy from a medical perspective, there's no real difference there.
Exactly. And then maybe this would be another helpful way of framing it. Even if you were doing the retrieval and then a later frozen embryo transfer, how do the economics compare to that bundle of retrieval plus the frozen transfer versus the full end-to-end fresh transfer IVF?
The delta of the cost of doing a retrieval and then a transfer versus a fresh cycle is nominal, right? So a little bit more because you-
So, pretty more expensive.
It's a little bit more because you're doing two different cycles. But when I say a little bit, you know, a little bit, the reality is that, you know, the comparison is really close.
That's super helpful. You've had this happen before. This is not the first time you've had atypical utilization. You had the Hot Girl Summer happen.
Right?
Yeah.
We've had this happen before the IPO. Can you talk a little about... A little bit more about how that's normalized and how quickly you see this happen with the function of the model?
Yeah, when we, when we saw it, so you're referring to the summer of 2021.
Yeah.
This is...
No, call it by its proper name.
Say that? Oh, yes.
Call it by its proper name. Hot Girl Summer .
Named by Stephanie. Hot Girl Summer . You know, at that point, when we reported and guided and talked about it, we were only seeing a couple of weeks of reverting back to the norm. But we projected the trend would go back to normal, and it did. And it happened so infrequently, like I said, in our history, it's probably happened, you know, two times. Once when we went public, you know, back in 2021, before that, when we weren't, and then this time now. It's that infrequent, which is what, this is what makes it an aberration, right? And so, you never know exactly why it happens when it happens. But you, based on history, you project that it's going to get back to normal.
...And besides the one huge mix issue, utilization has been increasing for a while, right? How sustainable are those increases?
Well, if you look at, you know, all four quarters of last year, right, utilization was up over the previous quarter, you know, the year prior, right? Utilization is, it's more reported in, in we announced, you know, year-end results, is consistent in Q1 so far, versus a year ago. Is it sustainable? I think the macro trend of, of people waiting later and later in life to have a baby, and therefore a higher percent of them needing the help of assistive reproductive technologies, I think is going to support, you know, you know, at least a consistent utilization rate. Whether or not it goes up or down, it's always peaks and points.
It's been staying within a tight range, but you know, it's going to be relatively consistent, I think, because the demand is still there, because societal trends continue.
The broader demographic trend does suggest higher utilization longer term. Why only bake in flat utilization this year?
What we're seeing so far. So we're not going to guide to something that we're not seeing. So to the extent that we're seeing consistent year-over-year utilization at that point in the quarter, there's no reason for us to predict an increase in utilization. Which is, you know, as we always guide, we guide based on the visibility we have at that time. Whether it's, you know, we do it a year after the full year, but we do it every quarter after. We can only guide to what we're seeing.
So should we think about utilization upside as more upside to your numbers because you're unlikely to ever want to guide to that? What would have to change for you to say, "You know what? We're going to bake in some utilization.
We'd have to see higher, actual higher utilization. So, we don't. It's really no different than we don't ever guide to adding new clients that start early, right? As an example, even though it happens, right, we also don't guide to something that we're not seeing. We'd rather articulate the basis of our guidance, and then people can sort of figure out and anticipate what they want to anticipate, as opposed to us guessing at, you know, an improved utilization that we're not yet seeing.
I think it's important to just address all the conspiracy theories about your stock, given how it's moved for the past year. Maybe let's talk about utilization in your new client cohorts versus the more tech-heavy client cohorts you've had. Are they meaningfully different?
Every year, if you think about the trend in terms of new client acquisition, we've been adding more and more clients across industries, as opposed to concentrating on clients early in our business that were disproportionately tech, right? As you do that, your overall utilization rate for that population, each year that you add, is lower than your blended utilization rate for the company. What happens over time, though, is each of those cohorts, when they come in, their utilization does increase over time, which is why the overall utilization rate still stays in that tight range, even when you're adding, you know, now across 45 industries, new clients versus sort of a higher proportion of tech, which tends to have a higher proportion of younger employees that are going to be top earners.
On a like-for-like basis, you had to go for like a year, three years of a client of your original cohort versus your new. Is the utilization similar?
For the same client?
You know, for two different clients, but same year of having the benefit.
Well, there are definitely differences by client in the same year because they're in different industries and as a result, the demographics of the population are different, and as a result, higher or lower proportion of population of top earners. That's always the biggest driver of utilization in any client. The overall cohorts, which is how we analyze it, because the populations are big enough that we add every year, they're in a tight range, right? So the blended rate of utilization for the new cohort of clients that we add every year stays in a relatively tight range also. That's below the book business, but comes up with that. That's what I was trying to communicate.
Is there any... And this is, this could be a dumb question, but forgive me. Is there any chance that you'll see a higher mix of things like cryopreservation with your tech clients? Because there are, they do tend to skew a little bit younger as opposed to the full IVF.
Short answer is no. The people with the medical need and the individual people across the population are going to behave the same. The industry isn't driving something different. The difference by industry is more the overall utilization as a % of that population. But what they do, it's a human need after that, and what they do goes back to the first part of the conversation, which is their incidence and prevalence of what they do on their fertility journey.
Super helpful. All right, hard questions over. Let's talk about your government clients.
This is... I'm going to get my-
So yeah, we added our first government opportunity last year, which we were really excited about. There's you know, the sort of first question when you're trying to get government businesses: Do you do any government business? And so now we get to check yes, going forward on that one. But obviously government business is different for a number of reasons. In particular, it is governed by how their benefits are structured through Aetna. And so for this business, we did sort of modify our model for our client. And really we're focused on first, sort of if you think about it as first phase, you know, we're really doing you know, case management, utilization management type-...
Services for them specifically, which is only a small portion of all of the services that you can have delivered. And we really view it as an entry point, as I said before, a way to sort of start to work with them in business. And, you know, if it goes the same way as the commercial book has, which is, you know, there's sort of benefits tend to increase over time, we would expect that, the government business goes the same way. And we would be in good position to the extent they do expand those services to, fulfill a broader need, and more traditional.
Have you ever had a client that started with more of an IUI benefit before?
Well, so interesting. So their current benefit is a little bit... is very unique, first of all. But their current benefit is unlimited IUI and then pharmacy coverage for what they call three cycles of pharmacy coverage, which again, is a unique way to describe that. And so we really don't have any other client that has that kind of structure around it. And again, more traditionally, our clients run on full cycles, whether that's one cycle, two cycle, three cycles. But, you know, again, working with the federal government, their structure is just a little bit different and goes through obviously a few different evaluations.
How did you make sure the financial profile wouldn't be wildly lower?
Well, in this case, because we're delivering different services for them, it does have a different financial profile, to your point. But again, that's why we really looked at this as an investment, as an investment in sort of, you know, bringing on our government, bringing on the first government client, working with them as they're evaluating the success or not of their model and what gaps might exist, and then ideally being in position to expand that down the road.
There's more of a PMPM pay, right?
No. It's this one, I would think about it more as like case rate, if you want to think about it that way. So, whether that's case management or utilization management, as someone comes in the program, we sort of, you know, charge on that basis. But again, the goal here is in working with them and working with OPM, that we, you know, look at what's happening in the commercial sector and create a more complete benefit offering over time.
What does that mean for the margin profile of this business, then? It's more case rate versus the utilization.
If you want to-
Yeah. It's, it's a higher margin profile, but the overall revenue contribution is a lot smaller, so you're not going to really see a big change in, in the overall margin. But if you look at that program by itself, it's a higher margin profile, because it's only, you know, a case rate from a revenue perspective.
It sounds like the hunting license is really the biggest part of this contract.
Yeah.
Talk to me about pipeline.
So our overall pipeline, obviously early in the year. But as we talked about a couple of weeks ago, the pipeline has started off strong again. And you know, again early in the year, but we feel good about where the pipeline is versus prior years. We had a strong number of not nows coming out that we've talked about before. Those not nows tend to make up the bulk of the early part of the pipeline and the sort of new business opportunities from a pipeline perspective really actually just start coming in now. So you know, whether that's government business or our general commercial business, as we said today, we feel good about where the pipeline is.
For the government business, do you need specialized sales folks that have done more federal business, or is this something where anyone?
No, we've done those sort of vertical alignments before, but for the government business, we handle that through our health plan model or our health plan group. Again, they've helped in sort of similar ways.
Well, let's talk then about some of these verticals, right? We're very tech heavy in the beginning. You've diversified a lot. Our channel check showed that a lot more industries are starting to offer fertility benefits. Are there any specific verticals where you see kind of a pretty big opportunity in the near term?
The opportunity is huge for every vertical, right? If you think about it, the need for fertility in this country is no different than it is around the world. The utilization of assistive reproductive technology is only, you know, 2%+ a year in the U.S. In countries like Israel, Denmark, where we have broad coverage in a single payer system, it's 10%. The only difference as to why it's 2%, not 10%, in the U.S., is it's expensive and not coverage. You're exactly right. You're not going to get patients who can't afford to have them on, right? So every industry is a huge opportunity because the penetration is still small across the board, no matter what industry you look at.
So the opportunity is huge in every vertical, including the new, you know, TAM that we've been going after, which is the, the, you know, labor, staff, hourly populations. But overall, there's no sort of one industry that we're looking at and going, "Oh, that's where the opportunity is." It's across the board.
So some of the pushback I'll get in your shares is, is this something that everyone adopted during the pandemic, and now we're, we're moving on from it. How would you counter that?
Well, I just did. The reality is that if everybody had adopted it, we would be closer to 10%, and we're nowhere near it. And so, the, what's happening when you hear about coverage, right, and the results, you, the studies, they never break down the details of it because it gets a little too complicated, right? The reality is this, even when companies cover all of it, cover it, they're not covering it comprehensively, many of them, right? We tend to cover it more comprehensively with Progyny than they do overall. But either way, overall, even when there's some coverage, there's a lot more to go even if those that are covering, there's still more companies not covering it at all. And of the ones that are, they're covering a portion of it, still not covering it fully.
And so the trend that's continued for us, and in general for the industry, is that over time, the same companies, same cohorts that you look at, are covering more and more over time. We talk about upsells every year and what portion of our existing base, you know, expanding their benefit, and it's been 20%-25% for the last, I don't know, 2-3 years. And so, that's the trend. The trend is more companies covering it at all, and then of those that are covering it-
Including carrier coverage.
Including-
Over 50% not covering it.
Yes. Yeah, over 50% not covering it. So if it was over 50%, you would see that 2% be higher, right? And so it's just, it's math, where incidence and prevalence for the CDC in the U.S. is 1 in 5 couples suffering from infertility. And, you know, that math is suggested to be closer to 20%, but not everybody ultimately, you know, does have a baby. But nonetheless, only 2% because the coverage still isn't there, but growing every year, which is why the number... Which is why the fertility industry itself has been growing, compounding with growth rate 10.5% a year overall. And which is why we break down the-
Healthy growth.
Because it's healthy growth. Healthy growth, but still not there relative to the overall need. To your question, you know, has most companies covered? The answer is absolutely not.
We talk about often Progyny as almost like opposition to the carrier benefit, but you've also started partnering with carriers. Could you talk about that a little bit?
Yeah. I would never call us an opposition to the carrier benefit. We're simply a benefit that has the ability to focus in one specific area versus the carriers are managing many diseases, right? So we could just do a I think a better job than what the carrier is doing for that reason, right?
I've tried both. I much preferred your benefit.
Thank you. I, I agree with you. But, but partnering with the carriers absolutely makes sense for that reason. At the end of the day, at some point, they have to decide sort of how much energy to put in one versus sort of managing, you know, across the board, and where it makes sense to partnering, and that, you know, is the road right now.
What do you think made Vistia opt for a more comprehensive coverage? Like, when I think about the carrier benefit, what I hated about it is that it's, you know, they, they offer minimal services by design.
Yes.
What would make them change their view on it?
Yeah, I think it starts with, you know, the evaluation that the health plan does isn't that dissimilar than the employer. But what they, what Vistia really saw and these are the type of health plans that we're looking to partner with is they went to the same place that employers do, which is it's about the outcomes. And when you focus on the outcomes first, and you look at all of those sort of hurdles, let's call it, or minimal services that the health plans put out there. At the end of the day, if you're looking at what the end result is, we get to the successful end result faster. We get there with better quality and we get there with, you know, significantly lower costs.
And really, at the end of the day, that's what carriers want. Now, when a carrier looks and says, "How do we get to..." or a health plan looks and says, "How do we get there?" Oftentimes they go to the things that have worked in other areas before, and that's sort of the one-size-fits-all UM type models or the constrained benefit structure model. We've shown that you can get to that to that same end result through a model that has actually more coverage, not less, but you're accelerating the path to success. And so, you know, Vistia was, you know, really looking at it that way.
They saw our results in the market, but we've won with their clients, and did a comprehensive sort of evaluation and, you know, came to the conclusion that that's a better path. Now, I don't think you're going to see us partner with, you know, every health plan in the country because that is, you know, that requires a very specific orientation from the health plan. So, you know, you'll see us, you'll see us work on Carelon , but, but you have to have that mindset, which is a little bit of a mindset for health plans for a lot of really good reasons, and they've had success in their model in other areas. But as you know, and as you see all the time, you know, fertility does operate differently for a number of different reasons.
Do you think as you have proof points from the Vistias of the world, that you'll be able to have more of an opportunity in the market with some of these larger plans?
For sure. I mean, you know, just like we see in our employer model, when we break into a new industry, it sometimes, you know, takes a bit of time. You know, health systems is the, I like to point to that. They, you know, you would have thought they would have been an early adopter, but they're more of a later adopter from an industry perspective. But once we put the first, once we were able to get the, the first health system in and with the benefit, you did see a rapid sort of increase from, from other health systems. Health plans and partnerships aren't anywhere any different in that sort of realm. So certainly, the first one leads to the second, second leads to the third, and on down the road.
We have time for about one question left. You guys, when you came out of the IPO, one of the biggest questions is use of cash, and you talked about M&A. We're still waiting on the M&A, but assets are a lot cheaper now, too. Is that still on the roadmap?
Looking for opportunities using our balance, absolutely still on the table. But while we do that, to the extent that we haven't found an opportunity, whether it's valuation or what those companies are doing, we haven't been tweaking, so we've been developing product and we'll invest in product. But to the extent that opportunities show up, we're absolutely balancing and we can manage that.
When you think of adjacencies that you would build into, what's your top three?
Well, yeah, it's the ones that you're seeing us actually being announced, right? So as you sort of go forward, it's, you know, more formalized preconception program. Postpartum and menopause is sort of the places that we've started. It's lots in between that sort of spectrum that we'll continue to look for, but, you know, those are the most logical sort of adjacencies to your question.
Awesome. Well, that's all the time we have. Thank you guys so much for coming.
Thanks, everyone. Good job.