Okay, thanks. Why don't we get started? Hi, welcome everybody. Thanks for joining us. For those that don't know me, I'm Glen Santangelo. I cover a number of things at Jefferies, including the healthcare information technology sector and, you know, other service-related names. And you know, we're excited to have Progyny here with us today. Representing the company to my left is Pete Anevski, the CEO, and James Hart, who does all the investor relations for the company, is sitting in the front row. So if you have any questions, he's obviously your man. I have a whole bunch of questions, so I'm just gonna do rapid fire here. Pete, if we have a little bit of time at the end, if anyone has any burning questions, you can maybe raise your hand towards the end.
But why don't we just get started, 'cause there's a lot to cover. Pete, a lot happened in 1Q. Can we start off by unpacking the comments you made on the fourth quarter call, where you said, "We're seeing some abnormal utilization trend. We've seen it in the past. It's... You know, we kinda think we're through it"? And then, let's roll the clock forward to late February report-- no, I'm sorry, to the 1Q report, and you said you saw some weaker utilization persist into March. So can you just walk us through, I guess, what you saw in the first quarter, and maybe bring us up to date in terms of what you're seeing?
Sure. First of all, thank you for having us. So, the two things that happened, which are unrelated, are when we reported year-end earnings, and in the end of February, we had called out that there was a mix shift. So it wasn't a utilization softness, it was a mix shift relative to what people were doing, that was impacting the top line that lasted about six weeks for the first half of the quarter, right? The only reason why we called that out was because, at that point, we were seeing year-over-year utilization trends consistent with last year, which was one of our peak years from a utilization perspective.
And when we put out guidance, we had talked about that the guidance was based on what we were seeing at the time, which was, again, you know, on an annual basis, trending towards a 1.09% utilization for the full year, and for the quarter, was consistent with prior year at 0.48%. Fast-forward to what happened in March, which we didn't get visibility into until the end of March, beginning of April, utilization did soften, and so much for March, that it brought the overall quarter down to 0.46%, and that had an impact relative to the top line and the guidance that we put out.
Our belief of what occurred is that once the Alabama decision. And for those who don't know what that is, when the Supreme Court of Alabama ruled that destruction of an embryo was wrongful death, and effectively shut down clinics in Alabama for three weeks until the legislature in Alabama corrected it with new legislation that said, embryos during IVF are not a wrongful death if you're destructive of them, but they're property. That caused the national conversation that we believe caused some trepidation with a small percent of people that otherwise would have utilized, and that's effectively what happened.
So, a couple things from that. You know, you talked about the Alabama ruling, right? And I think on the conference call, you seemed to suggest that it might have been seeing greater impact in some of the southern red states and purple-ish states.
That-
Is that-
Yeah, that is true.
- correct?
So whether the states have anti-abortion laws and/or states like Florida that are going in that direction with a six-week ban, those states collectively had a much more noticeable drop in utilization post the Alabama ruling than the rest of the states, the blue states, if you will.
So we published a note some weeks back, sort of looking at utilization trends in April. It looked like things got incrementally a little bit better in April. It's a little bit early to sort of comment on May at this point, but are you seeing any sort of-
Y-
Sequential improvement?
Yes. So again, the way I'm describing sort of what happened in Q1, March was a trough, and April came back better, not at the same level as January and February that we saw, but better, and that's what gave us confidence in our guidance that we put out for Q2.
Do you see anything in the regulatory environment that makes you nervous that, you know, in any way, fertility won't be available nationwide? Do you see anything on the regulatory side? And also, in that note, we talked about the bill that was introduced by Senators, you know, Ted Cruz from Texas, obviously, and Britt from Alabama, you know, trying to walk back, I guess, the, you know, the Alabama Supreme Court sort of initial decision. Is that having any impact, you think, or does that have any teeth?
So, so-
In a good way.
So there's a couple of things in that question. So here's the good news: post the Alabama ruling, Republicans across the country, whether they're at the state level or whether they're at the federal level, have all come out effectively supporting IVF, realizing that this is not a good political track to start to limit people's ability to build their families, right? Evidence of that is, again, what happened in Alabama itself, where the ruling happened, and then immediately, within three weeks, which is pretty amazing, corrected by the legislature relative to protecting IVF. Nationally, the presumptive nominee on both the Democratic and Republican side, both have come out in support of IVF, and even examples of what you're describing, which is Ted Cruz, and I forgot who the other senator was-
Britt.
Uh.
Alabama.
Yeah. Putting out something, albeit, if you sort of, you know, read what they put out, it won't... Not good enough, but either way, it shows that they realize politically, this is not a good issue. There is no movement legislatively, and we're monitoring, you know, both through our partners in the industry, as well as through the attorneys that we have. There's no legislative movement in any state that seems to be going in a direction that says that they're gonna now make, you know, destruction of an embryo wrongful death, similar to the Alabama ruling.
So when we think about utilization, right? We look back to 2023, we saw it was somewhat elevated, and, you know, 1Q kind of was what it was. Maybe April gets a little bit better. When we look at the balance of the year, do we expect to see gradual improvement? Is 2023 utilization rates kind of the goal? Is that where we're hoping to get back to?
So, the guidance assumptions for the back half of the year are based on a couple of things. They're based on the fact that there's still 200,000 lives that we sold last year that have not gone live yet, and the impact of those lives going live will be Q3 and Q4. That's the first thing. The second thing is that the assumptions around utilization are at the midpoint where we're at today, and today being Q1, and what we projected and talked about when we did Q1 guidance for Q2, consistent for the balance of the year.
At the low end, it would be below what we saw in 2002, which was, you know, the low point since we've been public of our utilization, which is 1.03%, put aside the COVID year. And then, at the higher end, you know, getting up towards last year, not fully up to last year, but getting up towards last year, which again, was the utilization that we'd seen in the first couple of months of this year.
Right.
And so that's sort of the range.
So when we look at the ramp in the back half of the year... Sorry, to emphasize this point, there are 200,000 more members that are coming on in-
Yes
Q3 and Q4.
Yes.
We don't need to get back to 23 utilization levels to sort of hit that revenue guidance.
To hit the top end, we would be approaching it, but we don't need to get to it.
Yep. Okay, perfect. All right, can we talk about the selling season? One of the favorite topics. Here we are, almost in the middle of the year. You added 1.3 million lives last year. Can you update us on... I mean, you talked about it a little bit on the 1Q call. Can you talk to us about how the selling season's going, conversations, the funnel-
Yep
... all those good things?
Yep.
You know, and maybe compare that to sort of where we are versus last year at this point.
Yeah, and that's a great comment. So when we comment on the selling season, we always talk about selling season is, as you might imagine, a process throughout, from February all the way through October, commitments happening materially in the middle of August through October. But there's a lot of things that we look at in the interim relative to the selling season, to measure sort of progress and where we're at, versus where we were a year ago this time. So when we look at overall pipeline, we look at active pipeline, which it is, you know, measured by sales milestones within each prospect. And so it's objective data, if you will. When we look at average deal size, we look at overall pipeline, we look at early commitments, all relative to last year.
We are favorable at this point, versus a year ago-
You're what versus-
relative to sales activity overall, and then I'm-
I'm sorry, you're what versus a year ago?
Favorable.
Favorable.
Favorable. And then the last piece is, we also have good progress relative to continued channel partners in the form of payers that we have arrangements with, some of which we haven't announced by name yet, but will. But overall, even on the channel partner side, we continue to make progress in expanding our channel partner relationships, which just helps with the overall selling season.
So can you talk about last year's selling season at 1.3 million lives? There was some criticism that it wasn't an apples to apples, 1.3 million. There were 300,000 sort of government lives in that number that were not sort of traditional members. Could you just maybe talk about that nuance difference, and maybe how that cohort's doing at, you know, six months into their contract?
Sure. So, put aside sort of people's view of, of whether or not, you know, those lives should be criticized or not. We talked about them for one very important reason, 300,000 lives, and we also called out that they won't have the same revenue contribution as our normal commercial business because of the plan design, of those 300,000 lives. It was a strategic decision. We would normally not do that kind of benefit design with any other, entity, but the federal government is the largest workforce population in the country. And to be able to become a federal contractor and then service, you know, even in the way that their plan design was, on a limited basis, those lives, we viewed it as a beachhead.
In order to be able to both get those lives up to the full benefit, as well as the rest of the, you know, as much of the rest of the federal population under the program. And that's what we've been, you know, doing, if you will, relative to that opportunity. It's early in that opportunity. It just went live, you know, in January. We are having positive conversations. That doesn't mean that we should expect that something's gonna change immediately, but the fact that there's positive conversations around what's happening with what got rolled out, you know, is it having the effect that they want, et cetera? You know, what limitations did we call out?
Are they in fact manifesting themselves into the limitations that we predicted, et cetera, are all positive conversations relative to how fast, you know, this program is being reviewed in real time, you know, for its effectiveness, you know, and for planning for the future.
Right. And I, I don't wanna put the cart before the horse here, but I guess the hope longer term would be that sort of the positive influence you're having on these 300,000 members, maybe there's hopefully down the road, maybe a potential opportunity to upsell or expand the contract over time.
That is the strategy.
Okay, awesome. Before we move on to the selling season, you know, let's talk about the fertility market in general, right? I mean, I think people are always trying to figure out how many self-insured companies are out there, what percentage of them have fertility? I mean, at last count, I think the number was somewhere around 9,000 self-insured corporates out there, and maybe 60% of them offer fertility benefits today. Are those numbers in the right zip code?
Yeah, so I'll modify them slightly, but yeah, they're in the right zip code. So there's 8,000 large self-insured employers that represent between commercial and union populations, you know, in the neighborhood of 100 million covered lives. On top of that, the federal population that I talked about is probably another 5.5 million, 6 million lives. In terms of coverage today, the best data that's out there, which is benefit consultant studies, there's for larger companies, defined as 20,000 employees or more, about half of them have some form of coverage. Wanna make sure that everybody understands that that doesn't mean they have comprehensive coverage and full coverage to cover full cycles.
That means you just have some, and a lot of them, you know, the majority of them are dollar ma ximum plans that cover, you know, a limited amount of IVF. And below 20,000, the numbers are roughly, you know, approaching maybe 35%-40% of those companies who have coverage. Again, similar scenario, similar plan designs, limited coverage, not full comprehensive coverage for most of them, right? So the good news is, companies continue to become aware and offer coverage, and they become more and more of an opportunity, whether they're not offering any coverage today, or they're starting to offer some and then realizing what they're offering should be enhanced if you're really gonna offer this benefit to your employees. And that trend continues to be very positive from a macro perspective.
Right. But, you know, just to put it in market share perspective, if we use the total TAM, you know, for lack of a better word, at 106 million people, you have only 6-7 million people, right? So your market share is just over mid-single digits at this point, with the bulk of those being those dollar Max contracts, maybe sitting with managed care companies at this point. Is that fair?
That is definitely fair.
And so when you're out there winning new business, half of them, from memory, is coming from greenfield, and half of them is coming from what you call brownfield, I think, which is coming from the managed care customers, right?
Correct.
That want a more comprehensive solution.
Yeah, both, both, both are correct. So for the last three sales years, roughly half the clients we won never had a benefit at all, i.e., greenfield, and the other half, brownfield, had some form of benefit, like what I'm describing, that the coverage is out there today, and then expanded their benefit offering with Progyny.
We get a lot of questions on the competitive landscape within fertility, beyond managed care companies. People talk about Kindbody, they're more vertically integrated. They own their own facilities, Carrot, WIN fertility. You know, talk a little bit about sort of your place within this specialized fertility ecosystem and how you think you're differentiated relative to maybe to some of those other specialized solutions.
Sure. We're the only fully managed fertility and family building benefit with a fully contracted direct network covering nationally, that drives favorable clinical outcomes consistently year after year versus national averages. Reports on every one of those members that goes through the benefit, not just a sample, and reports those clinical outcomes in our SEC filings, and demonstrates that improved clinical outcome versus every other alternative, i.e., the managed care plans that are out there today. As a result of that, a couple things have happened over the years. One, we've experienced nearly 100% retention, and when I say nearly 100%, it's like 99+% every year on a lives basis since we've been live in 2016.
Second, despite every managed care company and these VC-backed competitors being our competitors, we continue to gain market share every year, year after year, ever since, again, our first year in market, which is 2016. And all of that demonstrates the reality of the distinction that we bring and the differentiation that we bring to the table for a fully comprehensive, effective, value-based care model in fertility and family building that the others can't demonstrate, which is why, despite their efforts, they're out there with different models, 'cause ours is really hard to do, and theirs isn't, and that's why theirs isn't as effective, period.
You don't ever see a scenario where Progyny owns its own facilities?
I don't, because I believe that's an inherent conflict of interest. If I didn't, and a Kindbody model, for example, is the one that you referenced, was one where owning clinics was working, I would start to buy clinics. Of all of the standalone fertility and family building benefit companies that are out there, we're the one that has the most financial ability to own their own clinics. And we still don't believe it's right because one of the most important components of our offering is having a not only contractual but collaborative relationship with your providers to drive those favorable outcomes, and a lot of that requires data sharing back and forth, and you're not gonna get data sharing from these clinics if you're opening up competitive clinics in their neighborhood.
It's just not gonna happen.
Pete, you said you're, you know, you've been in the marketplace since 2016. You came public in 2019, so you've been a public company for five years now. So roughly 20 quarters, I mean, you've been to COVID and back, right? Which created a lot of disruption in the first half of your public life, and now kind of, you know, things have sort of evolved sort of beyond that. I mean, when you think about, you know, the barriers to signing up clients at a faster rate, like when you're out there in the market in the selling season, what's the biggest pushback you're hearing? Is it, you know, "Hey, this is great. We but we can't afford it," "You're too expensive," "Our employee demographics don't make sense for this solution"?
like, why, why is someone not selecting fertility at this point?
We hear none of those things that you just described. Here's what happens in the process, and I'll give you some good examples of it, right? It took us until 2019, I believe, to sell our first. Was it 2019, James? Our first health system. 2020, our first health system, right? That health system, large health system in the country. That health system, the thing that they described, they looked at the benefit for three years in a row, by the way, and they kept saying to us, "We're waiting for the right time. We're waiting for the right time." They never tell you what the right time is. There's different priorities that they have, there's different budgets that they have.
They're assessing sort of how much of a demand this benefit is for their employees, et cetera. But ultimately they said, "You know what? We just kept waiting for the right time, and then we realized there is no perfect time, and we just launched the benefit," right? That's more common as a description, that at the end of the day, companies have priorities, many priorities. They could be reviewing their health plan again and having a health plan out for RFP. Same thing with their PBM. They could be, you know, having a reaction to having, you know, too many standalone benefits, and they would want to roll them up into one place. They could just have budget issues in a given year or concerns.
Whatever it is, the good news is the macro trend of people realizing, companies realizing and covering the benefit continues in a significant way, and our ability to grab market share against every MCO and every standalone benefit company continues. We expect that to continue for the foreseeable future, because the trend is still there. It's just a matter of when these companies will make it a priority to add the benefit, within their company, and a lot of that is driven by who within their industry offers the benefit, and do they feel they're no longer competitive? Do they want to be the first? Et cetera. Many variables, but there's no sort of one theme that we hear.
Pete, maybe just shifting gears a little bit. One of the biggest questions I get from investors, or I think bigger concerns around the stock, is durability of revenue growth, right? And there are two big pieces to that algorithm, right? There's utilization, right, which kind of goes up and down for reasons we talked about, and then there's membership growth. I think what people are sort of, you know... And the company has done such a great job, right? Law of large numbers makes it harder to continue to grow. Like, how do you think about, you know, the competitive landscape? Could managed care ultimately do anything different that would alter maybe your ability to keep taking market share?
And then I guess the second part of that question is, when we—if, if we're right or the, these benefits consultant reports we look at are right, and 50%-60% of the members are covered by some level of a benefit today, what could that number get to? Could it get to 70%, 80%, or 90%, five or 10 years from now? Like, I'm, I'm just trying to think a little bit longer term as to what could be very different three, five years from now, relative to what, what we all may be thinking today.
Yeah. Uh, look, I think if you, if you just look at the benefit consultant studies of coverage a couple of years ago versus now, they were the same numbers I gave before. You know, 20,000 or more was 40% covered at that point. Less than 20,000 was 28% covered. Even in a couple of years, that's moved up noticeably, right? Relative to both of those populations. I believe every company will cover fertility because every company has made a compact with their employees that part of your benefits are medical benefits and pharmacy benefits, and why this condition, A, recognized by the CDC and the World Health Organization, as a disease, and B, incidence and prevalence of one in five people per the CDC, you have to at some point realize it has to be covered, right?
This isn't a nice-to-have, this is a must-have relative to the reality of national birth rates going down and the reality that the societal trend of people waiting longer and longer to have a baby still continues. And as a result, you know, by definition, it's a biological need, and you need the help, you know, to have a baby. So to me, all the macro trends are intact relative to our opportunity for the future. You know, you talk about the durability of the revenue growth. Part of what's impacting this year's revenue growth versus last year is you had the high point of utilization last year, and you have, you know, lower utilization this year.
That math alone, you know, if it were reversed, would have another 9-10 points of growth on the year. It just happens to be you're comping off of the highest, one of the highest utilization years we've had.
All right. I got 90 seconds, and I got one more question, then I want to give you the last word.
Go ahead.
Right. Let's talk about ancillary businesses. I feel like since you've been a public company, we've been talking about ancillary businesses. Menopause, you sorta made a little bit of a move. I don't know if it's having an impact at all, but the, you know, the company was criticized for a while about your free cash flow. Free cash flow trends have improved. Now, the balance sheet's in better shape. Are there any acquisitions, any other ancillary businesses, anything change with the business model or could change with the business model that we should be thinking about from an M&A perspective that could be interesting?
We've been deploying capital in the form of buyback programs recently. We still keep enough powder dry relative to opportunities from an M&A perspective. We've been investing in our own products and have a suite of ancillary products that we have created and are you know in the first year of piloting and we'll be rolling out, and we'll start to have a meaningful impact over the years to come. To the extent that there's any of those ancillary products, you know, that are all women's health products that are in areas of today, the overlooked and underfunded, underserved areas of women's health, where we could advance the ball further, that makes sense. We would do that.
There's none on the horizon right now, but we continue to look for those opportunities and continue to have the ability to do that. But in the interim, we're gonna continue to invest in our internal organization relative to being able to roll out those products.
All right. We're just about out of time, so I'm gonna give you the last word. But from what I heard, it sounds like you're saying regulatory environment's pretty benign. Utilization seems to have gotten better off of the 1Q levels. Selling season metrics all feel a little bit favorable relative to where we were last year, so maybe the company's, you know, onwards and upwards for a better 2Q relative to 1Q. But I'll give you the last word. Anything you want to leave investors with?
Yeah, I think, I think that's a good summary. I think, the takeaway is that all the things that have driven our business and growth through today remain intact. All the things that are under our control, we continue to perform at an optimal level, and I feel really good about how we're positioned vis-à-vis all competitors. The new product suite will start to have an impact in the future. It's early right now to talk about, but nonetheless, it will have an impact, and that product suite will have favorable margins even to what we are today. But overall, I couldn't feel better about where we're at and the opportunity for the future.
Okay, thanks very much. Pete Anevski, CEO. Thank you.
Thank you so much.