We're good? All right. Good morning. Is my mic on? Yep. All right. Perfect. Good morning, everyone. Why don't we get started? Excited to have everybody here for the first, my first presentation of the day. I think it's the second of the conference. I'm Glenn Santangelo. I'm the analyst at Jefferies that covers Progyny. We're very excited to be hosting Pete Anevski to my right, who's the Chief Executive Officer of the company, and to his right, Mark Livingston, who's the CFO of the company. Our presentation here is going to be a fireside chat for 25 minutes. I have a lot of questions, Pete, so we're going to go rapid-fire here, so we can sort of get through a lot.
But if anyone does have any follow-ups after the meeting, please feel free to reach out to me or James Hart, who's the IR person for Progyny. So with that, why don't we just jump right into it? You know, Pete, obviously, it's been an interesting year for the company. You know, you reported 3Q last week or the week before. I'm losing track of days now, but maybe that's a good place for us to start the conversation, you know, because I think it was the third consecutive quarter of maybe utilization or mixed trends that might be a little bit different relative to what you saw in the previous three or four years since you've gone public. And so maybe if you can just sort of walk people through maybe a little bit what you've been seeing year to date.
Mark, I don't know if you want to just quickly comment on the third quarter and sort of how that played out relative to your expectations, and then we can just sort of move on from there.
Sure. Sure. So, overall, what we reported for the quarter was relative to your your question on what we've seen this year from a utilization perspective, we were still on the higher end of utilization versus historical patterns overall. The difference of what we saw versus what we expected and variability from historical patterns is care consumption. So, it's cycles per utilizer that was down. What that means is that it's a combination of those that start the journey and go on initial consult and then didn't move on to treatment within the 90-day period, and it also means that those who did utilize utilized slightly less than what they normally did in past history relative to number of cycles, whether it was freeze-alls or egg freezing.
And so the combination of those two things impacted overall cycles per utilizer, which is the change in variability that we've seen versus historical patterns where you would see growth in cycles per utilizer sequentially throughout the year. We talked about that a little bit in Q2, where we saw a slowdown in the growth in cycles per utilizer. In Q3, we saw a drop a little bit, but we also commented that we're starting to see that reverse in Q4. Now, that said, we guided Q4 that it would still be similar to Q3 in terms of being down, but we also commented that we're starting to see the reversal of that trend.
So, if you were to sort of summarize this year, I mean, I know it's a hard thing to do, but when we were looking back at the first quarter, right, there was the Alabama Supreme Court ruling, and some might have said, "Okay, well, maybe it's a little bit political," and, you know, everybody maybe overuses the terms macroeconomic uncertainty. And then, you know, we're sort of looking at inflation, and everybody's aware how sort of the election played itself out. And, you know, I don't think it mattered one way or another, but I think it was indicative of the fact that maybe people were pushing back on the inflation that we're seeing in the United States. Do you feel like it's just that people generally are uncertain, have less money? Is it inflation? Like, what do you think is triggering these changes?
Like, if you had to, you know, hazard a guess or two.
Well, here's what I would tell you. If you think about inflation and its impact on our company last year, inflation was much more of a concern last year and the year before. Last year was our highest utilization rate year in terms of historical patterns, right? So is it inflation alone? I don't think so. But you're not wrong that there could be some uncertainty in people's minds, and maybe that impacted, you know, cycles per utilizer. I think the positive data point is that overall utilization, even throughout the year, is still on the higher end of our historical ranges, right? It's the cycles per utilizer that is being impacted as it's, you know, during the year as people are making individual decisions, right? And so it could be uncertainty around a lot of things.
I'm not sure if it's inflation alone is all I'm saying.
All right. Maybe if we could just go to the selling season, because you just finished up the selling season as well. You know, if I go back last year from memory, it was 1.3 million lives, and there was a you know some controversy around a government contract for 300,000 lives. The year before that, it was 1.3 million lives. This year was sort of 1.1, and I think people just sort of go into the quarter with the expectation that it'll be 1.3 for lack of anything better to assume. I mean, what'd you see this selling season? Was it more competitive? Was it more difficult? Were corporates sort of pushing back given the environment that they face? I mean, how would you sort of assess the company's performance this selling season?
Sure. So on a fully loaded basis, as you mentioned, we were 1.1 million lives versus a million lives last year when you exclude the federal government population, right? That's an improvement. We had talked about our sales activity and our pipeline and what we were seeing as late as August, and since then, we won every jumbo that we were competing for. We won a significant number of lives. And we still have remaining, you know, a number of accounts that are still active in pipeline, roughly 400,000 lives, which is where our comments were driven off of. Overall, you know, there's not pushback relative to the benefit or whether or not the benefit should be covered. It's companies, as always, every year are, you know, balancing competing priorities.
And those competing priorities are everything from medical cost inflation overall that they might be seeing, their whether or not they're looking at their health plans or their PBMs and making decisions and changes there, whether or not, you know, they're thinking about GLP-1s and how they're affecting sort of their decision-making relative to how they're going to cover it as a benefit, and changes they're making around that, et cetera. And so it's just competing priorities. But the good news is we closed $1.1 million, including real success with our new products. And on top of it, we have still significant active pipeline remaining, coming out of that sales season positions as well for next year.
Could you maybe talk about maybe just sort of industry penetration rates of fertility benefits? Because I guess there's one point of view that would suggest, you know, as the industry gets incrementally more penetrated every year, you have to go higher on the tree to pick that fruit every year. It gets incrementally a little bit harder. I don't know if you would agree with that or not. And then you also have competitors, you know, I'll call them competitors, recognizing everybody does something a little bit different in this space, but Carrot, Maven, and Kindbody are the names that we sort of hear the most. Is there anything, you know, to the fact that it just gets a little bit harder every year as the penetration level rises and our competitors get a little bit more aggressive? Is that a fair concern?
If you.
There's no industry that we're that penetrated in that we have that sort of issue, right? We sold into over two dozen industries this year, and the proportion of sales relative to large and small clients were almost mimicked our book of business, right? So one of the other concerns that people said, which you didn't mention, is, you know, have you gotten all the big ones already? The answer is no. And then we continue to get big and small, and sort of the proportion of clients, you know, is similar to the book of business that we already have. As it relates to competition, our competition is still primarily the carriers, right? But the standalone competitors that you mentioned are out there. We won collectively against all of them, you know, in terms of new logos and new opportunities.
You know, more than 2X where we, where we have known losses to them. So, so that competition has been here every year. It's, it's no different this year. You know, they do have, you know, you said maybe slightly different solutions. They have very different solutions. But either way, we continue to win way more than we, we lose to them or even the, the carriers overall. It's really more a matter of when people are looking to pull the trigger and cover the benefit than it is, you know, we're losing competitively.
Okay. Can, can we just talk about this penetration point before we leave it? Am I correct that there's roughly 9,000 self-insured corporates in the United States?
Roughly.
Would you maybe say we're 55%-60% penetrated into fertility of some shape or form, recognizing that half your client wins are greenfield and the other half are brownfield, maybe coming from managed care to you guys? Is that, am I thinking about that penetration correctly?
Yeah. So, so yeah, but let me just clarify a couple of things. So it's roughly 8,000 self-insured corporate employers. There's a whole host of other union employers, governmental employers, all part of our overall TAM and our TAM expansion. Relative to coverage based on benefits consultant studies, maybe 50% of over 20,000 employers have some coverage. Really important when I say some coverage, because when you have limited coverage, when you have dollar maximum plans, when you're barely covering one cycle or even half a cycle for some of the largest employers in this country, that's not really coverage, right? That's just a couple of dollars to say you have something, right, and then below 20,000, it's more like 35% penetrated, right, but you're also right that we win every year, greenfield and brownfield.
The brownfield is, you know, half of our sales are coming from those that have some coverage, but realize that it's not adequate and there's a better solution, which is why we win them, and so those are sort of a little bit more, you know, color and detail around the TAM. The way to think about it is this: you know, only 2.5-2.6% of babies in the U.S. come from IVF, right? In countries where IVF is broadly covered and comprehensively covered. Again, Israel and Denmark are the two countries in the world that do that. 10% of babies come from IVF. So you think about it in terms of actual coverage, it's probably more like, you know, 26% covered in terms of actual dollars and what should be covered.
Otherwise, it's cost prohibitive in the U.S. for most people that need it.
Not to stray off topic, but you don't see anything in the political landscape with the elections or RFK. You don't see anything sort of changing in your mind?
No. And we have, you know, not only do we have monitoring services, you know, with all the state legislatures and all the you know in the federal, at the federal level, but also all our partners in the industry where we collaborate in terms of with their government affairs group. Nobody's seeing any movement relative to any legislative change regarding IVF.
Hey, Mark, just to put some numbers around it. So in the third quarter, you had 6.4 million members. You added 1.1 in the selling season, which, you know, I think when you subtract, I think you said 670,000 lives for the large customer loss that you announced a quarter ago or a few or a couple of months ago. You know, that math would kind of get me to about 6.8 million members. And I think you're sort of forecasting 6.7 once everybody gets onboarded in January. It seems like there's been a little bit of leakage there, but am I doing that math correctly?
No, it's actually not leakage. It's that of the 1.1 million lives that we sold in this selling season, we've actually had some of them start early.
Oh, okay.
So they're already included in our third quarter numbers. So between that and the rest, it's really just rounding.
Okay. Obviously a lot of focus on the big customer loss, which I'm sure is very frustrating for you guys, given that in somewhat five years that you've been public, your client retention has been near 100%. And I think, did I hear you say on this conference call, 99%? Is that the right number? I mean, how do you think about renewal risk and retention, putting aside the one big customer loss that everyone's focused on?
Yeah. So in terms of clients making a decision to continue with the benefit and in fact many expanding the benefit and adding other services, we only had five clients, including the one that we disclosed, you know, left Progyny. Now, one of them was related to being acquired, being part of a company that got acquired, and they were just aligning benefits. And so there aren't, there's sort of no, you know, five clients out of, and 99% retention isn't bad.
Five out of how many clients?
Five out of four, over 460.
460.
Yeah. So it's 99% retention in terms of, you know, client decisions, right? And again, the it's important to know it's not just that they stayed with Progyny, it's that, you know, like every other year, 20%-25% of them expand the benefit in some way. They add cycles, they add egg freezing, they add adoption and surrogacy, they add other services. And then on top of it, you know, next year, 20% of our clients will have one or more of our new products. We in total have 1.5 million covered lives in the new products. And that's all a good sign relative to, you know.
Earlier in your remarks, you mentioned healthcare inflation maybe being something that might be on corporate sponsors' minds. You mentioned GLP-1s and, you know, obviously Progyny is the biggest, most well-established player, you know, deemed to be a premium benefit driving great outcomes. But, you know, some are concerned that maybe increased healthcare inflation may be forcing employers to maybe downshift and maybe look for cheaper alternatives that are maybe not a fair apples to apples comparison. Have you heard that? Have you seen any evidence of that? Are you concerned at all about that?
We haven't heard it from clients. I do know that some of our competitors are trying to compete that way. Let me just interpret what cheap, cheaper alternative is. Slapping a low dollar maximum on a plan isn't a cheaper alternative. It's lack of coverage, right? And it's lack of access, right? So if you want to compete and not cover and say you're covering, right, that's not competition, right? But at the end of the day, we're not hearing that from clients. And again, to me, the greatest sign is the level of upsell activity that we have across our client base, including on our new clients that bought the benefit. 40% of them bought the new products. And so it's really important to note that as you hear some of that other noise relative to, you know, cheaper alternatives.
Speaking of those cheaper alternatives, right? And we talk about the managed care companies offering these low-dollar, you know, alternatives. And it's kind of interesting because for years people were always nervous about the managed care companies being real competitors here that, you know, if they decide they want to reorient the way they do their benefits, they can do things differently and maybe better compete with you. But last quarter you made it pretty clear, you know, you signed a big national employer. I think you signed another regional employer. And it seems like the managed care companies, at least some of them are going from, you know, a competitor to maybe more of a partner in a way for you to sort of sell your benefit in partnership with them.
Could you elaborate a little bit on that? Because that feels like a sea change relative to something that was a big concern two or three years ago or maybe even last year.
Yeah, absolutely. That's the, that's where the trend is going. It started with we already had CVS as a partner when we got Evernorth as a partner that we announced last year, and we became their preferred solution within their FamilyPath product as opposed to when they used to compete competitively with us. With FamilyPath is another example. We signed a large regional player last year, with Independence Blue Cross, and this year we signed both a national player and another large regional player and a bunch of TPAs. So, so yeah, you're right. The, the thinking is shifting to, you know, serving your client and providing the best solution. While at the same time, they're not looking to invest and sort of do what we do, in this area, it's, it's, more efficient for them to partner with, with the leader that's out there.
Okay. Can we maybe talk about, again, maybe going back to the selling season, you sort of talked about, you know, sort of maternity and menopause solutions that you now, did you say you have 1.5 million of your 6.4 million lives under contract?
Would be the 67 for next year.
1.5 million.
Of the 67.
Of 67, we'll have either one or both of the products.
Maybe just give people maybe 20-30 seconds on what those solutions are, because I think investors kind of struggle to understand exactly what services you're going to provide and ultimately how you'll make money from that. Because I think, as you suggested, it won't be a meaningful revenue contributor in 2025 as you sort of ramp up that service. So if you could just give people maybe 20-30 seconds on those solutions.
Yeah. Sure. So with the Maternity Solution, it's additional support in between the periods where you're seeing your OB-GYN, all designed around preventing high-risk pregnancies or limiting and mitigating the effects of high-risk pregnancies.
Then on the Menopause Solution, it's giving people, you know, national access to providers that are trained and focused on dealing with issues around menopause and symptoms around menopause and the available treatments, relative to how we'll make money. They're all case rates. It's a case rate for each of the products. The case rates vary in terms of the different products, and utilization of those products will drive the top line.
And so, do you? I mean, I understand you don't want to give any guidance here, but as we think about moving beyond 2025, 2026, 2027, 2028, can these solutions start to be meaningful contributors to revenue? Would you expect?
Yes. So, as the reason why we're not giving out, you know, guidance around them yet is we have no experience with them. But the task at hand for us is to create awareness at these clients that these services are available and do, you know, communications with the members so that they take advantage of what their company is offering them. That will take a little bit of time relative to creating that awareness and creating that utilization. But over time, those products plus other products that we have in pipeline will all collectively be what they call a string of pearls. And so the combination of them, collectively will start to contribute meaningful revenue.
And then also just going back to the selling season, I think, I think you made a comment just a minute ago about, you know, upselling additional cycles to some of your existing clients. I mean, can you talk about the experience this selling season in terms of maybe what, what percentage of your client base maybe, maybe bought more cycles? Did anybody actually buy less cycles through this selling season? I mean, are you seeing any discernible trends that, that are worth pointing out?
Yeah, the trend is the trend we've seen in all the years past where clients are buying up and expanding the benefit and adding to the benefit. So collectively across all upsells, 30% of clients bought additional services, right? Whether those additional services were, as I said before, covering egg freezing where they didn't cover it, you know, covering pharmacy, even though we have pretty high penetration there. If they didn't cover it, whether it's additional cycles, whether it's adoption and surrogacy, whether it's some of the new products overall, and the level of activity even around the fertility and family building benefit is consistent with prior years where something in the 20% range of clients added something. But we're not seeing clients in terms of your question before on cost cutting or concern around cost.
We're not seeing clients pull back the benefit, and reduce coverage, from that perspective.
And when you see, you know, your corporate sponsors buying those incremental benefits, as you just suggested, do you quickly see a correlated pull through on the revenue side when those employees now know they have additional, I'll call it dollars to spend, but you know?
Yeah. So over time, if you look at any client and any client cohort, it's that upsell activity that increases the utilization, overall utilization for those clients over the years, right? And so, that is where it does correlate. And you do see that pull through, definitely over time.
And so you're saying that the average client is now maybe buying more cycles? When I look at today compared to the 2019 IPO, does the average client have more cycles today versus when you went public in 2019?
Yeah. In the book of business, absolutely. The average client has more cycles. New logos as they come on consistent with what they've been coming on in prior years, where they roughly get, you know, about two cycles each, and that's been consistent. We didn't see a drop there, but the existing book of business on average has more coverage and more cycles because over time, you know, a big chunk of the book of business every year adds services.
All right. We only have three minutes left. I don't know if anybody had a quick question from the audience, but Mark, I want to touch on fiscal 2025. I understand you don't want to give any guidance. And so we're not, I'm not going to push on that front today. But when we look at the membership guidance that you've given us for January, members are up 4%. When I look at consensus revenues for next year, the Street has it up only modeled 1%. And I think they have EBITDA modeled up flat. So it's kind of like people are either modeling in continued, you know, erosion on the utilization front, maybe decline in pricing or whatever, or maybe just consensus is bad. I didn't parse through all the details of it. I mean, have you noticed that disconnect?
I don't know if there's any sort of high level commentary you're comfortable making at this point without giving guidance.
Yeah. So, look, with the, you know, first of all, so I don't think that it's about utilization because that, again, that's been, you know, pretty strong throughout this year. Well, we guided to 105, 106 for 2024, which is closer to the higher end of, of all of our years. I think we've had 109, 107, it was 103 a couple of years ago. So, so it isn't about, again, the number of people that are coming for service. It's, it's what they're doing while they're here is what we've experienced late in the year. And as we mentioned, Q4, we've seen signs of that improving, but we didn't guide to that.
I think what, you know, likely what the analysts are doing for next year is carrying that forward into 2025 until, you know, that trend either reverses or returns back to where it is right now, or where it was, you know, prior to earlier this year. I think that's all I can say.
So, you're saying you're seeing the quality of the utilization basically improve in Q4, but you didn't conservatively want to guide to that. And it's your best guess that maybe analysts sort of modeled continued deterioration of that quality of utilization next year, which explains the disconnect.
Yeah. And when you do look at it, there's a pretty wide range across the various analysts of what their expectations are for next year. So obviously when we give guidance in February, that'll, I think, help really ground people.
Pete, one important point I want to come on before we leave. I mean, this is, I mean, obviously growth has slowed. That's been very frustrating for people. And then, you know, the utilization stuff, I think people kind of understand. And then all of a sudden you had the big sort of customer loss, which I'm sure is very frustrating. And I think, you know, everybody's vetted the reason for that, you know, that, that everybody knows it's Amazon. You don't need to say it. Everybody knows kind of why they left and where they left. But that sort of leaves a stock at, you know, 5.4 times EBITDA multiple, a free cash flow multiple in, in sort of the teens, right? And so what, how do you think about that?
You know, what sort of do you think you can do to maybe instill some confidence in investors? You're sitting with, you know, $230-240 million in cash, no debt, like great balance sheet generating cash. Like how do you sort of, is there any message you want to leave this audience with today? Because the multiple seems a little crazy to me. And I'm surprised with these partnerships you're now forming with managed care. Like, I mean, I've written it in my research. I feel like it's only a matter of time until somebody takes a run at this company. We're out of time, but I want to give this guy 20 seconds to see what he has to say. I think this is very important.
So, here's the really important message. I think the investors are overweighting the short-term variability in consumption with the long-term opportunity, right? And if you think about comps and you think about year over year, right, to the extent that last year was a record year relative to utilization, both overall utilization and cycles per utilizer, right? You're comping off of a tough year. We have a little bit of variability this year. The important thing is that the demand is still there. Clients, new logos are being added, services are being added, and the long-term opportunity is as good as it's ever been.
And so I think, you know, at some point, you know, the data points that you put out relative to the actual performance versus the multiple on the stock, I think is going to correct itself because it's going to be hard to ignore the level of cash flow generation that we do, profitability that we do, and growth that we do, vis-à-vis the stock price. And so I would say, you know, it's a huge opportunity for people.