Perfect. Greetings, everyone. Good afternoon. Thanks for joining this session of the Leerink's Healthcare Crossroads Conference. I'm Michael Cherny, the healthcare tech distribution analyst, and we do have the Progyny team, CFO Mark Livingston, here from the company. We have James Hart as well, who's sitting in the audience, on the investor relations team. We're just gonna hop right into questions, I think, unless you have anything-
No, terrific. Glad to be here.
So let's start with one, Q1 . Number of moving pieces, I think we can kind of touch on relative to both the quarter itself and how it translates, but maybe just recap the dynamics of how your visibility plays out in a given quarter. I think some of the mismatch that we've talked about before offline is, you know, it felt like by the earnings call in late February, that results were trending well, and then you saw another slowdown in March. So maybe just walk us through exactly the intake that you have of information and the push and pull that you get relative to thinking through the progression of your quarters.
Yeah, sure, happy to. So one of the things that it's actually an advantage for us is that all of our treatments are scheduled, and are authorized. So we have line of sight to everything that is intended to happen, within, let's say, a 60-day time frame for that particular service. We know where it's gonna be and who's gonna provide it, so that gives us insight to both the revenue and the cost that we'd be paying the provider, you know, given a certain window of time. And we have, you know, a whole lot of history around how those appointments eventually play out in terms of their timing, meaning, you know, at what point within that 60-day window do they typically occur?
But then we also have a normalized rate of cancellations, movements, changes, and things that can happen, you know, after the fact. So at any one point in time, we have 4, and to a lesser degree, up to 6 weeks of forward-looking information about appointments that are scheduled and the likely treatments that will happen in that time frame. But I think one of the things that's important to also know is that we're also looking backwards because until a claim is actually received for that particular treatment, which definitively points to the day that that happened, we're using our analytics and our history to determine when that treatment actually occurred, based, again, on all the history that we have. So what happened in Q1 is that, you know, history didn't repeat itself for, you know, a-
Let's call it a several-week period, that we began to see in, let's say, then began to see just in the middle of March. So as we began to get claims activity for February, and then eventually for March, as April, you know, continued on, it became clear that there were a higher rate of cancellations than we typically see. And as we said on our call, concentrated or more pronounced in those states that had more restrictive laws around abortion. And so, you know, that was one of the lenses that we certainly looked at.
But in terms of visibility, again, it's, you know, 4-6 weeks into the future and, you know, solid information that's building as we look, you know, backwards, if you will, waiting for those final claims and the final determined, you know, date of service to come in.
So you obviously have the data that comes in, and the claims data to track. Have you done any anecdotal work with the physicians? One of the key things of Progyny always been that you have a very highly curated, highly tailored, very push-and-pull physician network that you work with. Have you gone back to some of the ones, some of the areas where you saw some of that drop off and kinda asked them, like, if they were getting any incremental data or color on what drove some of those cancellations?
Yeah. So we certainly were reaching out to providers, even at the time, even as of, you know, a couple of weeks ago, and before that, as we were, you know, approaching earnings, to some of those that we have, you know, even closer relationships with, asking about it. I think the reality is that we're talking about, you know, a handful of people out of 100. These are pretty active and busy clinics as they are, and they're not really tracking their business as tightly as we are in terms of plus or minus, you know, small percentages. So, you know, there really aren't any anecdotal stories that we have to share around that. You know, even if you ask them, I think they might say that, you know, things seemed relatively normal.
It's just for us, again, with that in those concentrated areas and for that short period of time, and, you know, with all the lights of, you know, our forecasts and guidance and whatnot, that it sort of comes to light.
So maybe think about the guidance for the rest of the year. I think the term that you and Pete used was assuming that what we saw at the end of the quarter is what we expected the run rate for the rest of the year. Is that way of thinking about what's embedded in guidance now, plus the additional lives that are starting mid-year?
No. So there's one, we said on the call is that, you know, we, do have insight now into April, so activity levels of appointments being added, and sort of what's happening there, as well as for May. So we can see that the level of activity, which was, you know, much lower in March, has now come back, you know, not necessarily all the way to a 2023 level, but we've seen that come back, you know, pretty markedly for the month of April and for what we were seeing as May was beginning to build. So we've already sort of reestablished a new level as we got into Q2.
So our guidance for Q2 is effectively that, and implied in the guidance is that the utilization rate for Q2 will be, you know, roughly equivalent to what it was in Q1. So you had Q1, where it sort of slowed at the end. You've got Q2, where it's already recovered at some level in April and May, and maybe steps up slightly across May and June. But, I wouldn't want to leave you with an impression that, like, there's a slope required for Q2.
Okay.
The lower end of our guidance would assume something closer to what we saw for the back half of 2022, which for that year became 1.03 for the full year. That would represent a step down from what we saw in Q1 and what we're now implying for Q2.
Q1, as a total average, yes.
Yeah, as a total average, and the Q2 total average, they would imply a step down for Q3 and Q4. Again, as the lower end of our guidance and sort of pointing towards, you know, that full year for 2022. At the higher end of the guidance range, it would assume we get closer to what we saw in the back half of 2023. Now, admittedly, if you look at 2023, the utilization rates were actually slightly higher in the first half than they were even in the second half, so it isn't as much of a step back up across the full year. But that's what the high end of the guidance would effectively imply.
Okay. And then just thinking about the quarter, and we're close enough to it that I figure it's good to ramp you. You had an interesting offset of slow revenue growth, but strong EBITDA performance. And so how are you thinking, or how has your model evolved now to the point where you have real-time push and pull on costs? Just because I always think your business having such strong incremental margins, once you hit above a certain revenue clip. Clearly, you came in short versus expectations as discussed, but then profitability came through nicely. So maybe think about or at least give us a sense now on how the variable cost that you have now in the business model and how that's evolved over time.
So, you know, we always have controlled our, you know, operating expenses. And so there's, you know, some things that, you know, we were able to control in Q1, of a discretionary nature, but we have maintained those investments through the balance of the year. So again, our full year guidance is still a little bit stronger, given the revenue reduction that we made. So we're maintaining everything and we're moving forward with the same plans. We were just able to, you know, reserve a little bit, back in Q1. That's part of it, but actually a bigger part is on the gross margin line.
We are constantly working to make the delivery mechanism as efficient as it possibly can, and in particular, on the pharmacy side, we're always working with our pharmacy partners to ensure that they are delivering the most efficient and effective way. Happily, we do have three that we can benchmark against each other and learn what can be, you know, more effective. So we had gone after and was working with one of our particular pharmacies on delivery late last year and into the beginning part of the quarter on modifying some of their practices. They were able to do it at a much better level than we had expected. And so that's now continuing through the rest of the year.
So we saw some benefit from that in Q1 that we're anticipating will continue for the rest of the year. So it's like good old-fashioned hard work stuff, like just trying to always go after to what we're doing and make sure it's as efficient and as profitable as it can be.
Turning to the selling season, we're getting into the meat of when employers are really going down the RFP process making, you know, starting to make decisions. I mean, I know you said you already had some early wins, record pipeline. What's changing, though, about the discussions you're having? i.e., what become the biggest priority in terms of what they want? Is it network access? Is it just total cost? Is it touch points from patient care advocates? Is it ancillary services that you've started to talk about? Maybe walk us through how the mechanics of going out and winning contracts has evolved.
So I think interestingly, the one that we hear the most as what's brought an employer to us is actually one that you didn't mention. All those other ones are valid, right? They're always included, and they eventually, you know, appear through the course of the conversation, but it's really the member experience. I mean, the HR benefit managers are looking to provide, especially for, you know, about half of our customers as they come on new, have already had some form of fertility benefit. So they have some experience in what it can deliver, and, you know, for the cost that they're paying, what are the outcomes and what are the responses that they're getting from their membership?
The reality is that it's the origin of Progyny is to have created a better member experience throughout the course of the treatment journey and ultimately a successful end. Like, that's why we even exist. We were born out of effectively, you know, ineffective health plan management. And so it still is the same thing today. That is the leading reason why people come to us. Cost is certainly, you know, a factor as well. So once you've made that decision to that you want to offer fertility and you want to provide that experience for your employees so that they can have a healthy journey, they come back to work, etc. Then it's like, well, what's the most effective use of my money?
We have a very powerful ROI model, which demonstrates if you're going to spend this money on fertility, you know, how, you know, what is it do you want to get from it? And the foundation of what we do is the outcomes that we deliver. So 27% lower fertility treatments to a live birth equals 27% less cost spent to get there as well. So cost becomes obviously an attractive factor for them. And then there's a variety, as you mentioned, there's a variety of other reasons which also support it. But ultimately, member experience through favorable outcomes and a great member journey through our support that our PCAs provide, which then deliver, you know, a cost-effective program. That's what's has been driving it for all these years, and it frankly remains the same.
Are you seeing any changes in win rates? Or maybe, I guess, fair question, conversion rates? In basically, your entire public life as a company has been since COVID happened. There's a lot of other priorities that continue to bubble to the top of benefit managers within employers. You know, coined the term the not now customers. The ones who look into the benefit, but say, come back next year. Are you seeing that pool shrink as a percent of the total options, and are you seeing people be able to get to the finish line faster, or is that just the nature of they come when they come?
I would say the best way of thinking of it is that it all continues to just be bigger. Our active pipeline this year versus last year is bigger. And again, I know we say this all the time, like for us, active pipeline is, there's a rigorous process around being counted as active. It isn't just, you know, we've made one phone call, and now we're considering them a lead. So it is, you know, something that is actively in the works and progresses through a process. That's bigger. The not nows that we carry over from one year to the next have also been more significant. You mentioned it, the commitments that we've already received this year, which largely come from the not nows that carried over from last year.
We've had more of them this year than we've done in the prior year. Last year, of course, being, you know, one of our most significant selling season years. So, you know, as we get bigger, we're obviously we've continued to expand and refine our go-to-market resources, our selling folks. We've got specialists now in certain particular areas like labor, for example, we've talked about. So we've continued to sort of expand in all, and I think that's ultimately why, you know, again, our goal every year is to beat and exceed the number of members that we sold in each prior year, and that's, you know, what gives us the confidence that this year, that we're on a pretty good track to do that.
And how much more of the those leads, the top of the funnel of the pipeline is coming from some of your channel partnerships? I mean, you have big press releases around all of them, but they don't get talked about as frequently. Thinking of both the Express Scripts partnership or Evernorth-
Yeah.
CVS, Children's Hospital Association. Like, how are those factoring into your ability to be brought into situations with employers that may not have been thinking about fertility services but now have a pre-approved service that they can bolt on?
Yeah. Look, I think the best way of thinking of them is certainly there's opportunities that are coming through those channel partnerships that possibly we might not have seen. I think we believe that to the extent that there are opportunities out there for a company to adopt a carve-out fertility benefit, like we have enough recognition, certainly across the marketplace, certainly through the consultants and whatnot, that we are, you know, we're invited to participate. There could be some examples, perhaps, that there isn't. But what these partnerships really deliver for us is, you know, a removal of roadblocks and an accelerator to, you know, the adoption and the sale itself. So whether it's ease of contracting.
And they're all, you know, they all effectively have that similar, whether it's CVS or Evernorth, now Vistia Health, Children's, that you mentioned.
You know, it's the, you know, easier contracting, faster speed, the, you know, good housekeeping seal of approval, if you will, which includes, like, rigorous vetting around, like, our cybersecurity standards and, you know, our HIPAA positioning, etc. Like, we get very heavily vetted by this. That's the confidence that. I know we talked a lot about that in some of the early wins we had in around, Children's Hospital Association, some of the groups that come on that way. But it really is the same for all of them, is that, you know, once you get this endorsement, you move forward. And so we're, you know, we continue to work actively on building more of those partnerships just to, you know, again, try to funnel in, more and more at a better speed and a better pace.
How have you thought about the way the competitive landscape has changed? There's a number of participants that offer something, kind of fertility benefits. They can run the gamut of how they do it, you know, captive provider, broader women's health international presence, etc. How do you continue to make sure that Progyny stands out and, you know, in a RFP cycle, and everyone's gonna come and say, we offer fertility services?
Right. Well, look, I think that we've been saying this for years, and I think it's still the case. Our primary competitors are the health plans themselves. It is the easiest way for somebody to offer fertility or to continue to offer it, is to just do it through their plan. Unfortunately, the outcomes from that aren't as strong as ours. But yeah, there are a number of other, you know, competitors out there in the marketplace that do different pieces of that. And, we've certainly heard, and I'm sure everybody here has heard, that employers are looking for, you know, a reduction in the number of vendors that they're, you know, dealing with for all the various aspects of a comprehensive program that they're looking to put into place.
So for us, I mean, it's what has helped us, you know, drive towards, you know, some of the additional offerings that we've, that we've now announced, whether it's menopause, whether it's pregnancy , and postpartum, to begin to offer those as more of a comprehensive offering. Same thing on global. We, do have a reimbursement program that we include, and that's where, you know, that's what you, you see on the RFPs. They're looking for how many boxes can be checked. I think we believe that we compete, on the core fertility and pharmacy offering, you know, quite effectively with everyone. And in many cases, they don't offer, you know, anything close to what we do.
It is true that employers are looking for a more comprehensive suite, and so we've begun to adopt, you know, including some of those products in our suite. I think that helps remove that, you know, reason for pause, perhaps on an employer's perspective.
On those newer services, how are you getting paid on that? Are they still episode care-oriented where you get paid on utilization? Is there any PMPM component that comes into it just to have access to some of the particularly women's health-oriented pregnancy support?
Yeah. So, it's based on, you know, case rates and engagement. But to be fair, we piloted some of those last year, and this is our first year in market. So, like, I reserve the right to change this as time goes on, as we learn, but that is, you know, how we're approaching it this year is, you know, menopause, for example, to the extent that a member at a, you know, at a company, you know, calls us, gets engaged, and begins to use the services that we have. There'll be a case for that that would be, you know, effectively recognized over a period of time of support.
Then how are they - again, I know it's early, so subject to change, but being contracted. We always have thought about the fertility services as under the Smart Cycle dynamic, and you have your tokening approach for an employee to understand, okay, I need to go through a full fresh transfer IVF. I have my employer supports 2 total Smart Cycles. This is gonna cost me 3/4 per cycle. Like that partitioning. Like, is that-
Right.
Are they being applied the same way, or?
No. It's 'cause I don't think it necessarily lends itself to that same sort of dynamic. It's more of a, you know, like I said, more of a conventional, case rate. So to the extent that, again, somebody signs up for that service, there's a fee that we'll charge their employer for that. And, you know, that service would continue on for, you know, a year or a period.
You know, it's the dynamic of the industry expansion that Progyny has seen has obviously been a multi-year trend. It's not something that is new in any selling season. You continue to expand more within industries you've already built, expand new services. You talked about the layering effect. You get one and more layer in. What are some of the newer industries teaching you in terms of different pieces of utilization? You know, the question that I think comes up a lot is, you know, versus your initial cohort, you're seeing different utilization trends.
I guess, how does that factor in as you now have more experience in seeing them and seeing how also, like, the education of the benefit dovetails through, you know, maybe a health system employer or a large industrial employer versus the way it might be communicated through in one of your early larger tech companies?
Right. So, one thing that I think that's important for people to understand is that the, whether it's industry or based on the year of their start, the level of utilization has been really consistent throughout time. So whether they're a 3-year-old client or a 6-year-old client or what have you, that utilization's been consistent and has slightly ticked up over time. And that ticking up you know, is driven by, one, expansion of the benefit, additional smart cycles, what have you, but also, I you know, we believe because of the increasing incidence rate of infertility. Used to be 1 in 6, 1 in 5, now it's more like... Sorry, 1 in 6, 1 in 7, now more like 1 in 5, and that's gonna drive that utilization.
But, you know, as far as what we've learned, you know, the last few seasons have been pretty broad from an industry perspective, more like, you know, the economy, if you will. And so we think that they're probably pretty indicative of what, like, a normalized level of utilization would be, you know, across, you know, the broader spectrum of all industries. And they've been actually quite consistent individually in their first year and then what they've done sort of each year after that, whether it's, you know, now we have one that's in its second year, we have, you know, one that's in a couple of years, a couple of years on. So it's that consistency, I think, that is sort of the important takeaway.
You know, we've talked a lot about lives in the last couple of years. I think, again, because we're sort of broad, you know, if one industry is losing lives and the other one's gaining, they sort of generally offset. I think the same is sort of the same in utilization. If you have an industry that, again, the age of the population of that company is the single biggest factor in what a utilization rate is gonna be for that company. The number of employees of childbearing years, let's just say, in their thirties. So some industries and companies tend to have more, and some tend to have less.
But as a basket, they tend to even out, and that's what we've seen in these last couple of years, and, you know, that's what we would, I guess, expect as we go forward, to the extent that we have a broad basket of industries that we're bringing in, that they'll have a fairly consistent utilization rate to start and then grow over time.
You talked to us a little bit earlier about the idea of the clinical outcomes, which you've seen numerous studies showing it. Maybe give a little bit more, as much as you can, of the secret sauce behind it. You know, it's aside from the network curation, what are some of the other activities that Progyny supports, pushes encourages in order to make sure the clinical outcomes stay where they are?
Well, look, there's a few legs to the stool. So the network is important. Having, you know, the best doctors in your network is critical to delivering the best care. Managing that network and partnering with them, sharing data in a bidirectional way, not just taking data, but also providing data back, benchmarking that data for them, you know, helps them practice their medicine better, period. So that's a critical part of the overall stool, but it's not the only part. The plan design, you talked about it, the way that we have designed that in and around smart cycles so that people have the benefit of being able to go down a treatment journey-
-without being as focused on whether or not they will have enough money to get to the end of that journey, incents a behavior that is more geared towards treatment success and not, you know, cost efficiency necessarily from a member's perspective. In the end, our model proves that if you spend the right amount up front, you'll have the better outcomes in the end, and actually, you will save cost in the long run. But that's hard to explain to a member who's just beginning their journey, and they're looking at a bill. So the plan design is important for that.
I think probably one of the most important, which is almost sort of taken for granted, is the support that our PCA team gives to the members as they go through this, educating them through that journey, helping them, you know, have the courage to make, you know, those tougher choices around what they should do and what they shouldn't do, helping them make sure they understand what their doctor's telling them, staying on time. You know, all of those are components that help drive those clinical outcomes. Like, that's the high-level version of it. But then you can get into other tactical things. I think the last piece I would point out is the integration of the pharmacy benefit.
You know, our ability to sort of tactically intercede on a timely basis with the drugs at the right time, in the right place, so that cycles aren't missed by patients, is a critical factor in that as well, in keeping those patients, you know, on the right path, on a timely path, and being able to succeed.
And so along those lines, with regards to pharmacy, it was obviously an important strategic rollout. Now it's near total penetration. Where does pharmacy grow from here? It just grow alongside utilization, alongside membership growth. Are there other areas, especially from a profitability perspective, where you can drive better total growth? How should we think about pharmacy as a incremental growth driver?
So there's still... You know, once all of our clients are live this year, we'll be 93% penetrated for pharmacy. In the last several selling seasons, we've had, you know, upper 90%, 98%, 97% take rate. So, you know, it's clearly, you know, an essential part of the process. We still have the 7%, and we're never gonna give up. So we're happy to keep chasing all of those. But yeah, I think the growth profile for pharmacy will continue to converge with medical. The, there are some a little bit of different drivers there in that there are routine underlying, drug price increases, which as the way that our contracts are structured, do pass along to the client.
So from a top-line perspective, there's a sort of an additional tailwind around pricing, which will drive pharmacy maybe a little bit more than medical. But otherwise, again, assuming that incidence rate, the prevalence and how treatments, the mix of treatments, you know, is relatively consistent, notwithstanding, you know, what happened in Q1 one there briefly, the amount of drugs and the amount of treatments will likely stay the same so.
We're running low on time, but, you know, just to dive in a little bit on one of the financial components, the balance sheet. You've been debt-free since you've been public. Unlike every company in this broad-based health, IT, digital health, benefit, balance space, you're generating cash. It's done some modest buyback, and you have a new authorization last week?
Yes.
So, how do you think about the balance of investments going forward? I mean, clearly, in a dislocated stock environment, buying back shares is never a bad idea, but against the backdrop, too, of building out some of these services, which has been all organic. But theoretically could be supplemented with inorganic growth as well. How are you thinking about all those moving pieces relative to the next leg of capital usage?
Yeah, so look, we announced these two buybacks because we do think that there's certainly a disconnect between the performance of the stock and what we believe is the performance of the company. And so we're reducing the amount of shares that are out there to demonstrate confidence in the stock and that we believe that it's undervalued. We're still generating a good amount of cash. We're roughly 75% or so of EBITDA, we're expecting to generate in operating cash flow. And it has been more than enough to generate all of the organic investments. I commented earlier, all those remain intact for this year, all the things that we're looking to develop.
Yes, there's possibility for M&A, but we're still, you know, we still have a few hundred million sitting there, likely by the end of the year, with the potential to do more if we needed to. But, as we've said a number of times, I have a pretty extensive history in and around M&A, so does Pete and David, our Executive Chairman. We're not shy to buy companies that we believe that they're gonna fit the strategic direction of the company and that they'll be accretive. But we're also wise enough to know, you know, what the pitfalls can be from making bad acquisitions, and so we're pretty, you know, we're pretty measured about what we would do there.
So we still have plenty of dry powder, I think plenty of borrowing power, if need be, and for the moment, we're looking to just reduce our share count a bit.
Mark, James, thanks so much. We're out of time.