Hey, good afternoon. My name is Allen Lutz. I'm the Healthcare Tech and Distribution Analyst here at BofA. We are very excited to have Progyny with us. We have the CEO, Pete Anevski, CFO, Mark Livingston, and the President, Mike Sturmer. Thank you, the three of you for joining us.
Thanks for having us.
I guess it's no surprise where we're gonna start here. On utilization, clearly, this is the biggest focal point for investors, in addition to the treatment mix shift we saw in early Q1, and then the impact from the Alabama Supreme Court decision. I guess, taking a step back from all of that, can you just speak to the utilization rate that you've observed in your business, since 2018 or 2019, and maybe skip over COVID, and then talk about what you've seen 2022, 2023? We're just trying to get a broader picture of what's going on and what has gone on in the life of the business.
Sure. So, I go back to, you know, 2019, which is the year we went public. Utilization rate in that year was 1.09% female utilizers. We focus on female utilizers because they're the biggest driver for revenue. 2020 we'll skip, because that was the first year of COVID. 2021, we were 1.07%. 2022, we were 1.03%, and in 2023, we were again 1.09%. It's a relatively tight range, and even though each year we're adding a cohort of new clients and the lives that they bring, and in all those years, the lives were substantial in terms of new client adds and covered lives.
The rates stayed relatively in a tight range, because, you know, the overall demand is still there, and even with variations by industry, and even with the fact that every new cohort year, in the first year, the utilization rate for them is slightly lower than the book of business, and that's normal every year. The overall book of business continues to ratchet up over time, the utilization rate, and it all balances out to that tight range.
You made some comments about utilization in April on the call. I'm curious, can you speak to what you've seen so far through early May, and how should we think about utilization rate differences in red states versus blue states? Is the utilization rate that you're seeing in red states consistent with 2023? Is it also impacted? And if it is, can you kind of discuss how much it's impacted?
Yeah, so the comments I made relative to April on our most recent call were all in context of the comments we made when we reported at year-end. So, at year-end, you know, end of February, we reported that our overall utilization rate, including in the, you know, across the book of business, was consistent with the first quarter of 2023, which was, you know, again, one of the best years, you know, similar to 2019, and one of the best years in terms of the utilization rate over the last, you know, period, you know, back to 2019.
Then, what we saw after that, and we didn't start getting visibility into it until the middle of March, but just started to, and then really got visibility in April, is the utilization rate diverged from what we were seeing when we reported and guided. And the divergence was more pronounced in the red states, in those states that are either have an anti-abortion law and/or are moving in that direction. A good example is the state of Florida. And so they had a much more pronounced divergence from the prior year utilization rate than the blue states, if you will.
You know, one thing, just to add to it. When we talked about when Roe v. Wade was first overturned, we talked about it having and seeing it as more of a limited impact to the business. At that time, it was more centered around abortion and less so around fertility. So again, a little bit less impact. This year, as the conversation turned a little bit more around fertility, admittedly, Alabama is still a very small state for us, but it was a broader discussion. Those red states are the states that are, you know, have more of a anti-stance around abortion. Represents about 35% of the population and about 35% of our business. So, that was, you know, more of a substantial impact again, in that month of March, than just that one small state. I think folks have sort of conflated that a little bit.
So, to answer the first part of your question, that when I referred to then what we're seeing in April, it was in comparison to the trough of utilization that we saw in March. And now what we're seeing for April, including in those red states, we're seeing a reversion back to where we started seeing utilization for January and February, the beginning of the year.
Very helpful. As we think about the utilization range among the different types of customers that you have, I think there's a couple different ways you can think about it. One would be cohort, so a 2018 cohort versus a 2023 cohort. Business type, technology versus manufacturing, something like that, and then company size, a smaller company versus a larger company. Are there any meaningful trends that you've seen or differences in those types of cohorts, where some have higher utilization, maybe more structurally than others?
I don't know if your question is in relation to what we saw versus what we guided originally? Or in general?
This is just sort of more, more conceptual.
Yes, there is. The biggest driver of utilization difference is demographics, and industries usually represent demographics. The example I like to give all the time is a tech company is generally gonna have a much higher concentration of younger employees in childbearing years as a percent of total, and therefore, they're gonna end up needing the benefit at some point, potentially, versus an old economy company, like an oil and gas company or a telecom company, that's gonna have employees, you know, across the board in ages, but on average, you know, higher. And so a smaller portion of their population is gonna be in childbearing years.
Yes, really small companies are gonna have utilization that fluctuates, but either way, for the overall trend in book of business, that doesn't matter because it's the bigger companies collectively that represent the overall lives. They're predictable after that once you get to sort of the industry level. So as we look at all of our activity and all of our expectations, we do take into account the industries we're selling into, in terms of expectations going forward.
And just to get to your point around sort of the age of them, like the 2018 book of business that launched, and the 2019 and the 2020, they have sort of an established level once they start. They've been relatively similar over these last few years because we've had sizable cohorts with a broad mix of industries in them. But the other trend that we see as opposed to differences is similarities, that they tend to stay stable and/or increase slightly over time. We've seen that literally with every cohort going all the way back to the beginning of the company and the benefit that we've been offering. So there's a stability there that we've seen that's lasted, you know, now into the 9th year for the earliest cohort.
That makes sense. As we think about the, I think the, Pete, you said the range of utilizations has been between 1.03% and 1.09% over the past several years, about call it a 5% or so, 5%-6% delta. I guess the question for Mark, as you think about the guidance framework, why, you know, if you assume the midpoint of the, the average utilization, 50% of the time, you're going to come in worse than that, 50% better. Why not, from a guidance perspective, assume the low end every time, and then, you know, you'll, you'll beat that? I'm just curious, sort of, how do you think about the methodology of the guidance? Is there something that's changed over the course of the business where you would expect utilization to be kind of structurally higher than the average or, or higher than the low end, where that, you know, that, that typically wouldn't be a risk?
So, again, for us, and I almost started to answer it there before, is that we see that once a cohort of clients has started, they sort of, you know, begin to form a range of utilization that lasts over long periods of time. And so as we build more and more cohorts on top of them, there's sort of a stability there. So, you know, one of the things that we do when we especially when we're doing our first annual guidance for the year, is that we're looking at the utilization rates, not only of the new cohorts, but of the existing ones, to reconfirm that they're still at, you know, that level.
So this year, when we did our guidance, and Pete's already said it, all the way up until the day that we gave guidance, that whole group together was tracking virtually identically to the same utilization pattern and build that we saw from 2023, which is why we, you know, pointed towards it. We've said this really consistently since we've gone public. What we want to do is we wanna, you know, we wanted to frame our guidance around what we're seeing. You know, what is happening in this group?
So now our guidance, you know, reflects that, which is what we're saying for Q2, and then we frame the upper and lower bounds based on, you know, what we saw last year for the second half of the year, which is closer to the high end of our range, and the second half of 2022, which is closer to our lower end of the range. Again, just to give to give folks a sense of sort of where that, that variation could be.
Mark, sticking with you on the updated revenue guidance, other than utilization, is there any other factor of the guidance that was impacted in the quarter? And what would be the largest non-utilization swing factor to the top and bottom end of guidance, for the remainder of the year?
So, i f you're just looking exclusively at Q1, you do need to adjust for the notion of the mix issue that we saw just at the very beginning of the quarter. Which, again, we said on our Q4 call had, you know, been resolved. It was, it was short-lived, and we reiterated that the other day, that we've not seen that, and we continue not to see it in, in anything that's being scheduled today. So, you do need to keep that in mind. We do have 200,000 lives that are coming on board here, some in Q2 later in Q2, and some in Q3 and for the balance of the year.
So there is a step-up that will happen, you know, naturally, and that's also in the guidance that you need to understand. I think people are looking at growth rates year-over-year. So, you know, high single-digit growth rate for Q1, high single-digit growth rate for Q2, and then our guidance implies double-digit growth rates in the back end, and they're sort of trying to query that.
I think, you know, the one thing we do need to keep in mind is we did have a very strong year last year, and in particular, the comps for Q1 and Q2 are, you know, significantly stronger. Q2 last year was 5.0%. That was our highest ever utilization rate quarter. So that's, you know, part of what's factoring in on why those j ust from a growth rate perspective, it looks like the back half is maybe a bit stronger. But if you try to normalize those out, that's, you know, that's where we, you know, that's where we see the rest of the year.
Got it. Switching gears to the selling season and pipeline, Pete, you mentioned on the call a goal to meet or exceed the 1.3 million lives that you had last year in the 2025 selling season. I think you talked about the average deal size now is larger. Can you unpack what's driving that? Is that the average employer is larger? Are they utilizing more services? You're kind of tapped out on the pharmacy benefit side. So if it's not larger employer size, what else is driving that?
Yeah. It is larger employer size. So when I refer to the average prospect being larger than a year ago this time, it relates to the lives, the average lives that come with it. We wouldn't know. We guesstimate based on sort of our history, but we wouldn't know what their utilization is yet. They haven't started yet, right? It's about the lives and the average life within our active pipeline right now versus a year ago is bigger than it was a year ago.
But it's also the overall pipeline is larger, and when we say active, there's a, i t's very specific relative to sales progression and sales milestones that they're hitting with certain clients to be called an active prospect in the pipeline. And so these are, you know, already in different forms of discussion with different sales collateral and financial analyses, et cetera, going back and forth. And then we also talked about just overall the sales progression. For sales progression, it's commitments to date, again, is favorable versus a year ago. So just on an overall basis, we feel pretty good about the sales progression so far.
You mentioned a bunch of different prospect types, different industries, healthcare, auto manufacturing, travel and leisure, media, government. As you think about maybe the intermediate term outlook and the pipeline, how long should investors expect that average deal size to go up? As you think about the addressable market, I think you mentioned during the IPO roadshow, 8,000 potential employers. How does that look today versus then? Are there still a greater number of larger employers versus your average customer size today? Just trying to get a sense of what the pipeline looks like and what the opportunity looks like over maybe a 3-5-year period.
Sure. So the biggest difference between when we went public to today is the TAM increased to add labor and union Taft-Hartley type companies, right? On average, though, and, you know, we did an analysis. You know, we stratify our customer base in terms of large and small clients and the lives they represent, and we put that in our public filings. If you looked at our you know, the distribution in terms of size of client back in 2018, that we compare, right? 2018 versus today is virtually identical as a percent, right? We're still only penetrated in the single digit percent against the overall TAM, which is now 105 million lives, versus when we went public, it was 75 million lives.
And, you know, the other sort of data point that we put out there is we only have 17% of the Fortune 500 as clients today, 7 of which we added in the last selling season. So we're still early in our, in our, you know, addressing, in our addressable market in terms of, of, of capturing market share. And, you know, we're not anywhere near sort of the inflection point of, of worried about, do we have, you know, all the big companies, if you will, and the average size is gonna somehow go down.
So since the IPO, you've expanded in the addressable market in two ways. You've added new services, then you mentioned you added sort of government and those types of prospects. I guess, as you think about the opportunity, let's stick with the additional services, so menopause, maternity, postpartum. How should investors think about the revenue opportunity around those added services? You know, it seems like you're really adding. Obviously, the pharmacy benefit uptake was very swift, and that drove a very clear and demonstrable increase in revenue. How do we think about some of these other services as it impacts, you know, how much does it impact the revenue line of your business today?
Well, so those other services are different than the fertility and family building benefit. The medical and pharmacy won't flow through us. They're case rate type of services. So the revenue contribution on a per utilizer basis will be lower, but the overall margin, gross margin and EBITDA margin will be favorable for those, because we could leverage, again, a lot of our infrastructure in what we're doing. And as we continue to develop and roll out those products and continue. Right now, we're only in a pilot stage with a small number of existing clients. So they're still in the early stage of being rolled out.
And so when we're in a position to sort of talk about, you know, what the expectation is relative to, you know, take rate and utilization, around those, we can quantify better what the opportunity is. But as we develop these, and collectively, you know, they'll be a nice contributor that we'll be talking about separately from the fertility and family building benefits.
And then the second piece there is the government. Obviously, you have 300,000 lives. As you think about, there's two ways to increase contribution from the government. It would be getting them to use more services or adding more government customers. As you think about the opportunity, the near-term opportunity, which seems more likely, or how are you thinking about the opportunity? Does getting this first government customer, has that brought more government prospects to your door? Just curious what you've seen there so far.
Sure. So Michael spearheads that, so I'll let Michael answer.
Sure. The short answer is it is-it's both. When we sort of entered into this opportunity, it was sort of with a future strategic lens on it. As you well know, the services we're providing are smaller in this group than what we would traditionally provide on the commercial side. And we did that with the intent to bring on our first, you know, governmental business and opportunity. That checks a lot of boxes. Like, I like to say, you know, the first question on a government RFP is, you know, "Are you a governmental vendor?" And so we can now check yes on that versus obviously no in the prior years.
And we did that with a lens on, on both of those areas. One is to grow and sort of, mature our services with the existing group into what is a more traditional and full Progyny service, within the existing group. But also then attract, and add to pipeline, new federal government business, local government business, state government business, et cetera. And so, you know, we're, we're sort of marching down both of those paths. The conversations have continued, which is encouraging. Again, you know, it's government, so hard to say how long these things take. But we've been encouraged with the conversations and the continued interest.
Got it. That's great. One for Mark on capital allocation. I think the first quarter was the best quarter for cash flow in the company's history. So let's talk about capital allocation. Obviously, the business is very cash flow generative. How should investors think about the opportunity to invest back into the business versus things like share repo?
So we've been reinvesting in the business all along. I mean, that's already baked into, you know, effectively the EBITDA levels and the expansion EBITDA that we've achieved over years. You're already hearing about new products and various things, whether, again, years ago, looking back to, you know, launching the pharmacy product, and now pregnancy, maternity, postpartum, menopause, et cetera. You know, that's all within the run right now. We have a very low, you know, capital expenditure hit to operate the way that we do. So you're not seeing a lot of that sort of hung up on the balance sheet. So really cash flow positive, and we have the, you know, disposable cash to make the investments and continue to do so.
So we did announce the share repurchase, you know, following our guide in Q4. You know, we certainly believe that the stock is, you know, it's a good value at the rates that it was trading at the time, and we're obviously a little bit lower than that now. We did give an update on the program that we had purchased about 2 million shares and had about 32 million or so left, as of our call the other night. You know, we'll certainly consider whether or not we want to expand that program. We have not announced that. We've made no decision to do so. We might not, but certainly it's out there.
What we've said for quite some time now is that, you know, we are looking at opportunities to expand, including through acquisition. So we've kept our powder dry. We still have plenty of cash, you know, on the balance sheet now, to the extent that there are, you know, acquisitions either in adjacencies or other accretive acquisitions that we felt would be worthwhile, that we're, you know, prepared to do so quickly.
So, you know, we've maintained that position. I think, you know, the first program that we did around share repurchase, you know, effectively would buy back about the same amount of shares that we would have issued on an annual basis, from a basic shares basis. So we've, I think net, net, we'll have overall reduced the shares outstanding, the diluted shares outstanding, which has actually maintained a fairly level number over the years. So we've taken a bite out of that already, again, to sort of reduce the number of our shares out there.
On your comments about M&A, is there any way to frame the type of opportunities that would be within scope and the type of opportunities that would be out of scope, as you think about the core value proposition of Progyny today? Just trying to get a sense of if this would be looking at something that might not be core to what Progyny does, or if it would have to be kind of core to the immediate value proposition.
Yeah, sure. The sort of broad categories are anything that would make sense within the specific vertical that we're already in, and anything that makes sense relative to the adjacencies that we're already investing in, or other adjacencies that make sense in terms of women's health areas, in particular, to the extent that they're overlooked and underserved. Those are the areas that we've been focusing on. Those are the areas that we'll continue to focus and invest on. That's where we're looking, right? To the extent that something else around being a benefit provider presents itself, that's an Engine 2 opportunity, if you will, we wouldn't rule it out. It's just something that it's not our number one focus. Our number one focus is sort of what we're doing.
We have looked at some things, and valuations don't make sense, and so we haven't pursued anything in any meaningful way, you know, in terms of some of those things. But, you know, that would be the other category if it presents itself. I can't sort of tell you in that broad category what we would rule out. It's more a matter of, you know, it would have to make sense, you know, relative to valuation versus the opportunity versus our financial profile today for us to even pursue something like that.
Got it. Let's quickly talk about the competitive landscape here. There are a lot of different models in your vertical. You have health plan competitors, you have some health plans that competed, but now they're partners. You have competitors that own clinics, you have asset-light competitors. I'm just curious, why is Progyny you know... Kind of pitch me on why Progyny is the best model, and what differentiates it from all those different competitors out there?
Sure. The number one thing that we do in our plan design and our approach, in the support that we provide our members through what is a complicated journey in fertility, and in the relationship we have with our providers, we're directly contracted with every provider in our network. And they're set up, and the entire design is set up to make sure that as the member goes through a treatment journey, they do it in what is considered best practices as often as possible, and that ends up in driving favorable clinical outcomes for the member. And it ends up in having, you know, significant financial savings for the plan sponsor, right?
And so it's that uniqueness that's given us the ability to, against all the competitors that you described, against all the payers in the country, against, the VC-backed competitors that you're referring to, that all have different models. It's given us the ability to continue to gain market share against everybody collectively, ever since, we started the benefit, and launched it in 2016. Michael, I don't know if you want to add anything to that.
No, I mean, I think you've covered all the areas. The summary is, you know, at the end of the day, it's about, you know, delivering great member experience with great quality outcomes, you know, at a low cost. And, you know, we've got the history on that. We've got the metrics that support each one of those. And that positions us really well against all the groups that you referenced.
Well, and that's also the number one reason why our retention rate has been effectively 99+% , you know, from a lives perspective, every year since we've been in business. That's pretty unique in healthcare.
Ultimately, the proof of it all is the outcomes that we deliver that are outpaced all of the health plans, and really, most of the VC, really none of the VC-backed competitors even report the outcomes. I mean, we are making a difference for people through our outcomes. I think ultimately, you know, all of the pieces that we just talked about is what supports that, that ultimate mission, and that's why we're different than everybody else.
What % of the addressable market offers some type of fertility benefit today? I know you've talked about it in the past, but I'm just curious if you have an update to that number.
It's anecdotal, but I would say it's roughly, you know, different parts of the country are different, but it's roughly approaching 50% in terms of overall coverage. But some form of coverage, right? So, you know, every year we win of the clients we win in the last few years, half of them were brownfield, and half of them were greenfield. The brownfield aren't comprehensive coverage like the Progyny benefit. Many of them have dollar maximums that are not enough to ultimately get everybody to a successful outcome in terms of a live birth. And they have other limitations as well as, you know, step therapies and enforced protocols. So it's still not the same thing.
But I would say, you know, there, there's been, you know, the benefit consultants have done surveys. I think the last one was done beginning of 2023, if I remember correctly. They were quoting, you know, companies, 20,000 employees or more, you know, roughly 40% of them have some coverage. Companies, less than 20,000 employees, roughly 28%. That's grown since then. You know, it's, if 20,000 or more, I would say it's probably closer to getting, approaching 50%, and under 20,000 is probably 35% or so.
And then, with the last minute left, I think you teased an Investor Day this August.
Yep.
You know, so I don't want to ruin the surprise, but I guess, can you provide some high-level thoughts about what your most important consideration for investors are today?
Sure. So looking forward to hosting an Investor Day. We haven't picked a specific date, but it'll be sometime in August. We wanna both give the investors the opportunity for a deeper dive in what we do, so, you know, to answer at a deeper level, your question around why we continue to gain market share versus everybody else, given sort of the competition that's out there. But also, we also want to showcase the new products that we've developed, you know, you know, what their contribution, you know, will be down the road.
Got it. Great. Well, we are out of time. Thank you, everyone in the audience, for joining us, and thank you, gentlemen, for joining as well.
Thank you all for having us.
Thank you.