Are we good to go? I'm an early riser, what can I say? Okay, good morning, everyone. Welcome to this session of the Leerink Global Healthcare Conference. I'm Mike Cherny, the Healthcare Tech Distribution Analyst, but it's my pleasure to have the Progyny team here. We have a full suite. We have Peter Anevski, CEO; Mark Livingston, excuse me, CFO; Michael Sturmer, President. Sorry, I forgot there's no C there, just President. And then James Hart, who's with us in the front row, who does all things IR-oriented.
I have a ton of questions prepared, so I think we're just going to dive right in. Pete, you just reported earnings two weeks ago. It was an interesting dynamic in the fact that you pre-announced back in January positive results. You then beat the pre-announcement by a pretty healthy margin. Maybe just to level set, what does the market performance and the improvement of special utilization tell you about what drove the outperformance and results for the quarter?
What we had talked about, and I'll go back to when we reported Q3. When we reported Q3, we had talked about seeing a reversal from the drop in our cycles per utilizer that we saw in Q3, and that we were beginning to see that reversal in Q4, and that we were seeing higher levels than what we had seen in Q3. Comparatively speaking, as a trend, we were seeing positive engagement from care consumption relative to our cycles per utilizer. What ended up happening was, as the quarter progressed, including you talk about the timing of the pre-announcement versus what we reported, there's still limited information we have relative to actual engagement. We know what scheduled appointments are.
We know what people are doing, but you still need to close the books and go through a process of confirmation with your providers around what's actually occurred, and that's what you report on. What ended up happening was the ART cycle pre- utilization that we saw as an improvement when we reported Q3 in November, beginnings of an improvement, improved even further by the time the quarter ended. That is positive relative to the trend. We see the sort of Q3 drop as a one-time phenomenon, if you will, and the beginning of it returning to normal levels is positive, beginning first with what we saw in Q4.
It is always good to see upsides in numbers. Q4 is telling because you're a company that's still in the process. You add a lot of members to start the year every year. By the time Q4 gets around, you get a good sense of what especially the newer members are doing from a utilization perspective, what the cohorts look like. As you went through the year, especially into Q4, did you see any changes in the type of utilization that was coming through your customer base? What are you seeing now from a mixed perspective?
Are you talking about what we're seeing so far in Q1?
We can get that after. I'm looking back because obviously 2024 was an evolution year that obviously ended on a higher note. Especially as the customers ramped over the course of the year, what were you seeing that helped drive that return towards a more normalized utilization level?
Yeah, so what we saw in Q4, again, as we see the beginning of return to normal, is we saw overall ART cycle utilization increasing on a per utilizer basis, right? Again, off of versus Q3. Nothing different relative to mix of what those utilizers are doing, so nothing outsized relative to freeze-off cycles versus transfers, for example, or higher or lower egg freezing or anything else like that. It's really just the overall ART cycle utilization rate per member increasing, but the mix being sort of normal, if you will, right? And that's positive. The other thing that didn't drive it, we got this question. We get this question pretty commonly, is we had one large client that announced their leaving Progyny. There's a transition to care over the first half of 2025.
What did not drive our results was that client and their member base sort of rushing to use the benefit because it was going away. That did not happen. That was not the driver of the growth. The growth was the overall book of business and return to normal.
Yeah. No, and yeah, clearly the underlying core showed those signs of improvement. As you think about starting off the year, again, it's stupidly early from the amount of data set you have, but what's been encouraging so far, especially about your new member cohorts? Can you remind us you had a strong gross new lives additions of heading into 2025? What do those customers look like versus recent trends, and how do you see the continued evolution of your customer base, given that the amount of lives you service, the whole mantra of you only service tech companies has been outdated for years, but continues to evolve into more and more industries?
Yeah, so we sold 80-plus clients representing 1.1 million lives. The majority of them are going to be live by the end of Q1. The majority of them are actually live in Q1, but nonetheless, by the end of Q1. Their behavior in terms of utilization and consumption is not different in any way than sort of most first-year client utilization. That generally is lower than book of business. It's always been lower than book of business. I will refer you back to investor day where we sort of broke out that data point and roughly 0.67, 0.7% utilization of the new client cohort versus the overall book of business, which is ranging between 1.03% and 1.09%. This one's not behaving any differently than sort of every first-year cohort.
The reason for that is every year you're generally across industries and you get higher and lower utilizers from an industry's perspective in a cohort of that many clients and that many lives. They generally behave the same, and this year's no difference so far.
Maybe go back to the investor day, which feels like two years ago at this point in time. Maybe a question for you, Mark. Really appreciate how you gave us a look under the covers of your business. Obviously, it was the first investor day, full investor day you've done since you've been public, and kind of gave a sense for all of us how you think about forecasting, how you think about the transition from data sets into your business, and then started to touch on some of the opportunities you have and you're pursuing on further data aggregation to help with long-term visibility.
Maybe just remind us about some of those trends and then some of the other work you're doing, given again, you have a lot of members under management, like some of the new data aggregation tools you're pursuing, other metrics you're going, so as you continue to build more and more visibility into your business.
Yeah, sure. Great. By the way, thanks for having us here. Yeah, we broke out a number of different things that we had discussed qualitatively over the years, including, as Pete just alluded to, the difference between what a new cohort and an existing cohort looks like. I think the other thing that we showed was how existing cohorts tend to be stable or slightly grow over time. A lot of questions we've gotten over the years from investors is sort of an expectation that there's a pent-up demand at a particular client and that there'll be a large level of utilization in the first year, and that sort of trails off. We wanted to be sure people understood that. We have a tremendous amount of data that we can leverage for predictive purposes.
The most reliable data that we have is obviously the claims that we get, very specific and precise as to the timing and the actual treatments that are being undertaken. We have open authorizations that cover a span of four to six weeks out into the future largely. Those are tied to the menstrual cycle, so you do not have scheduled appointments that go out for many, many months in advance. It just does not work that way, unfortunately. We have an expectation around authorizations that could come for the balance of the period or the balance of the year based on all of the history we have with like customers that can be really instructive. Again, given the relative consistency of utilization, it has been in a pretty tight range over all of our years.
It does have variability because it's really all about us creating a benefit that has access and availability for the member when it's their time. That's part of, I think, ultimately what drives some of our availability is that that timing can be different for people. I think that's what really drove, although we don't know why that time was different for some folks last fall, that's ultimately what drove it. We've been spending a lot of time using predictive analytics to continue to refine what we do. I'll say that at times there's a, depending on how deep you want to go into data, sometimes the deeper you go, the less consistency that you get. You end up creating more variability. That's just, I think, simple math, honestly, when you have populations.
We're striking that balance and looking at things a bit lower than perhaps we were looking at in prior years, but also not down to sort of an individual level where you can kind of get lost a little bit in the weeds. We're excited about some of the things that have come out of that, and we've incorporated that into how we develop our guidance today, including some of the different levels of variability that we've seen over the last few years.
I want to come back to that utilization number, but you mentioned data, and I want to stick on that a little bit. I remember all the charts that you put in your presentations about clinical outcomes, about cost outcomes, about why employees, why employers have financial success, but also clinical success when utilizing Progyny. How much does the ability to call it cross-pollinate data make your service more effective over time? You're only as good as the ability you have to drive down costs and have people have healthier babies. The more data you ingest, seemingly the better chances you have of continuing to drive better ROI. Maybe you could talk proactively about some of the work you're doing there now.
Yeah, so the data, you're right in the sense that the more and more data you have, you can impact things in a positive way, not just around clinical outcomes, but around the entire member experience, the member journey, and the ability to make that journey as frictionless and as easy as possible for the individual member. The fertility journey is a complicated one. It's very unique and it's very personal relative to your needs and also your preferences. Leveraging that data and having a collaborative relationship with the network and the amount of data sharing that we get and the deep relationships that we have and have built over the years is a really important component to the overall value that we bring to clients.
Very important a s we continue to expand the product offering, as we continue to add to it and address other populations at companies, data is going to be important there also, and we're positioned to gather and create and leverage data as it relates to the expanded product offering also.
Yeah, and I think just specifically around clinical outcomes itself, we're very proud of all the work that we do in managing our provider network. There's quite a collaborative relationship with the data that they send us, as well as the reporting that we give back to them and the oversight, frankly, to be sure that they're following effectively what best practice is. I think the more that you do that, the more you get the clinical outcomes that you have and the more ROI you can deliver for your clients. Honestly, I think for all the years that we've been talking about this specific point, it surprises us that there's really nobody else across the industry that's even attempting to capture that level of clinical outcome success to be able to report outwards.
Which actually is a perfect lead into my next question. Michael, we might have you chime in here as well. Is that whole dynamic of the competitive environment? As you think about going into an RFP, especially a competitive RFP, obviously there are differences if you sell about how the benefits are applied, differences you sell on the potential for outcomes, ROI. What are you seeing? I guess with 80-plus customer wins last year, what do you think are the pieces of Progyny that are resonating most in getting your name signed on that dotted line?
Sure. Maybe from macro down, the buying criteria in healthcare in general, but for Progyny specifically, has not changed much. It is still about member experience, quality outcomes that we sort of just touched on, and ability to control cost. Those remain the three primary buying criteria of employers. We were very successful last year in our jumbo clients and our jumbo pursuits, I should say, which, as you point out, the jumbo pursuits are always going to include sort of the full suite of competitors, whether that is the sort of private VC competitors or the health plans. We had, again, a really successful year there where when a decision was made, so when the group was not a not now, when they actually made a buying decision, they chose Progyny over those competitors, again, and each one of them.
I think the reasons, especially in those really big jumbos, is the depth of the analysis, the depth of the RFP, the depth of the questions, and whether it's the consultant involved, the number of folks on the employer side involved. They get to that second and third level, and that's really where Progyny's experience comes through, where you get past the 50,000-foot headlines of center of excellence, and you really start to understand, so how are you managing that center of excellence? What are the changes that you've made? That corresponds into the data on what's then been the impact of those changes over time, whether that is unit cost, whether that's outcomes, whether that's experience, whether that's expanded journeys, whichever it might be.
We continue to come into this year really confident in being able to compete there and sort of continue that success that we've seen across the years now.
Along those lines, you won't have an employer RFP that doesn't have a medical carrier of some sort. Chances are in any RFP you're going through, the medical carrier is involved somehow. How does a medical carrier, a traditional medical carrier, ever beat you? I guess why would someone choose a carrier? I say this against the backdrop of your expanded partnership with Cigna, building on the relationship with Express Scripts, obviously two different organizations within one company, but they've had an offering in the past and basically said, in my mind, our offering's not good enough. We'd rather sell through Progyny. I guess maybe use that as an example for why the carrier can be successful at all once someone decides that they need to look beyond the carrier's four walls.
Sure. No, it's a great question, and it does go back to sort of where you started on competitive. RFP or not, we're always competing with the health plan. The health plan is the constant. They can always turn the program on with the health plan. Every opportunity that we're in throughout the year, the health plan is our competitor, is why we've said for years, health plans are our number one competitors. There's a few things, and if you use the Cigna as an example, where we win and why we win against health plans or maybe to reverse it when we don't win against health plans is it's almost more like a not now when we don't win against health plans. When it's a new benefit going in, we will win.
It's rare that they stick with the health plan because they're making sort of a conscious decision to add this benefit and add a certain amount of dollars and benefit to the equation. In those cases, they're sort of intentionally looking for a change, for lack of a better term. When the health plan's the incumbent, there are still advantages, and this is why we're excited about the Cigna partnership and all of our health plan partnerships. There is an ease of purchase. The health plan sits fundamentally in the decision-making process of the benefit. It is an ease of addition and an ease of adding the benefit where our jobs are to go in and say, here's the exponential value that we can add in and across all the areas that you referenced. It continues to be an area that we'll always compete in.
We show and compete really well when the employer is in the mindset of that change. Sometimes they're just because of where family building might fall in the priorities. It just might not hit that let's change and carve it out priority perspective yet, which is sort of a second level of, yes, I want to add or yes, I want to start to put some level of coverage in place.
Maybe kind of a transition along the competitive landscape dynamic is some of your additional services that you first really unveiled at the Investor Day. I know menopause was in the works before that. You talked about the adoption rate on services as part of both wins this year as well as existing customers. What are they replacing? Relative to whether it's a carrier-led model or some other carve-out that doesn't necessarily need to belong as a carve-out anymore, what are you doing differently on menopause, on maternal services that the market doesn't have access to currently?
Yeah, it's really interesting because each of the groups or each of the areas and services are really different. If I start with menopause around what we're adding, the fact of the matter is menopause is serviced through largely primary care. The challenge has been primary care has lacked and continues to lack the expertise in that area. What we have really pulled forward in the menopause world is specialization and expertise specifically in that area from a network and provider perspective. Secondarily is sort of the coaching, whether that be digital coaching services, content, or through our PCAs, that coaching and support mechanism in that area. When you look at it sort of from a cost perspective, while fertility is this really small volume, high-cost sort of service, menopause, again, sits in more of the primary care pricing area.
It's really about - but it's a much bigger volume - i t's really about how can you create ease of access to the right specialists with the right support from a question and coaching perspective in the menopause world. Maternity is a little bit different. Maternity, really, you have a network of OB-GYNs. You have benefit coverage. Those pieces are there underneath. What's lacking is more of that member support. While the health plans do a nice job today around the highest- risk members, they struggle to identify those members. They struggle to sort of have an experience that pulls members in. From a maternity perspective, we fit really neatly on top of that from a member experience - again, whether that be digital or coaching perspective - while leveraging that sort of infrastructure that already fits.
As for replace, we're not, we're augmenting and extending the services more so than replacing them because, again, this is largely a nascent space where there has not been a lot of innovation and a lot of services added.
If we can go back to the utilization discussion, you gave a range on utilization expectations for guidance. Guidance is meant to be a range. There are puts and takes on what can happen in terms of the range. As you think about particularly for the year, how do you think about the building blocks on that range, given that on the one hand, it is below historical trend rates. On the other hand, it comes off of a year where utilization surprised you. We talked before about both the upticks as well as some of the other data sets. I guess, has there been any changes to your approach to forecasting utilization that went into the 2025 guidance in particular?
First off, I think one of the things that's really important to understand about the guide and the range and how it compares to prior years is that when you remove that large client that's not continuing and then you include 1.1 million lives at that lower rate that we were talking about, that sort of initial- year rate, that just sort of blending is going to bring your overall average down for the year. Part of what you're seeing in our guide is just the impact of that on a full- year basis.
That affects both the utilization rate itself as well as the ART cycles per female unique utilizer because typically when you have a new client, especially earlier in the year, the utilization that they're undergoing is more initial consults and getting started than it is actively within treatment, which is what a recurring client you typically see. Those are two, I think, frankly, some of the biggest factors that we're seeing. We obviously use the data that we're already seeing in the year. For our Q1 and full- year guide, we've got upwards of six-seven weeks' worth of activity data and to some degree claims to sort of help us build all of that out. What we did for this year is we took a similar approach to what we did last Q4.
We did say that we're seeing good activity, favorable activity here as the first quarter started. We set our guide to contemplate some of that range of variability that we saw, not just last year, but in other years as well so that we give effectively a much wider range to try to account for the things that we've not yet seen.
Along those lines, and I think it's helpful to know because what I'm hearing is the parts of the range that might be seemingly below historical trend is stuff that obviously you can't control. In terms of how you feel you can control, there's a lot. How much goes into whether it's for the new customers, targeted marketing, letting them know that the benefit exists? I mean, I appreciate for the large customer that's leaving, the fact that you're working with them to offer support. It's very easy for you to say, "You're leaving us, so January 1, sorry." It's, "No, your business is built on helping people build families." That touch, I think, would go a long way in the market.
As you think about that dynamic of utilization, what is there that you can do, whether it's on the educational side, on the marketing side, to try to push knowing that obviously you have to have a person who wants and needs the support?
Look, if you think about it, right, the most important thing that we do is we're there for members when they're ready to use the benefit, when they need the benefit, and based on their time and when they're going to do it. We do everything we can to make the member journey as easy and seamless as possible. We do everything we can to lift homework from them, for lack of a better term, and do as much as we can for them so that they can get on that journey as easily as possible. We support them relative to anxiety and stress, etc., in that process.
We do work with our clients in terms of communication and work with their marketing teams and their comms teams in terms of communication tactics to make sure that members are fully aware of not only the fertility and family- building benefit, but now the expanded products, right? Those are all things that you can do, but we shouldn't expect that to be a big driver and up or down in terms of a switch that we have. We should just always understand that there's going to be short-term fluctuations.
One of the important things that we did at the JPMorgan conference is we showed a slide that said if you took sort of the average utilization rate since our existence and averaged it out every year and did the pluses and minuses relative to the impact on a short-term basis, variability in utilization, there is literally on a cumulative basis, $20 million impact on the top line, right?
It is important that although in any reporting period, in a short-term period, you can have variability, on a long-term basis, the things we can control, which is the product, the service, the quality outcomes, the member experience that drives a high NPS score, the communication that we do with our clients and them understanding the value that we deliver every year, and then our effectiveness in the market in terms of adding new logos and lives, those are the important things that we control that drive the overall value of the business. Any short-term variability in consumption or utilization has proven to be just that, short-term. That is, I think, the way that you should think about that.
We are doing everything we can relative to working with our clients in terms of communication tactics to make sure members are fully aware of all the benefits that they have available to them, including the new services.
Perfect. We touched on some of the newer services that are coming out, but the original new service was pharmacy. Pharmacy has been a great success story in terms of attach rate, both existing and new. What's left on pharmacy? I mean, it seems like the incremental sell-through would be fairly limited, obviously now the joint sale of new customers. How do you think about how you can make pharmacy either better, more efficient, or other pieces in there relative to the pharmacy offering? Is it just steady state? There's nothing to fix.
Yeah, the pharmacy business as a product, there's not a lot that we have in a product roadmap. Nuances always, but not a lot that we're going to say, "Okay, is that going to somehow change the financial contribution or profile of the pharmacy business?" From an upsell perspective, every year we continue to get still those that are sort of slower to commit, but ultimately buy. There's still 10% of the client base that isn't on the pharmacy, doesn't have the pharmacy product, and so they remain an upsell opportunity. Overall, from a product design perspective, the product is pretty robust.
Just sort of tagging on to your last question and this one, pharmacy is an area where the operational excellence that we bring to it is what's helping people continue on their journeys at an appropriate pace. I think that's from a member experience standpoint, that's probably one of the biggest selling points is that people don't miss cycles because the drugs didn't get set up and received on time. It is all of those kinds of nuances that we've put so much effort into to be sure that, again, people can get the benefit at the time that they want it and they're not missing time. That all makes for a much smoother and more consistent level of utilization, both on the pharmacy side and the medical side.
With the last of our time, I want to go back to something from the call as well. It was about some of the incremental investments and growth. You outlined $15 million, I think $50 million of excess investments. You obviously made a couple small tuck-in acquisitions to build some additional capabilities. As you think about those investments and the opportunity set coming from a position of strength, cash flow generation, balance sheet, clean balance sheet, etc., how are you measuring yourself against making sure those investments turn into the returns that you want?
The investments are all designed to both take advantage of the acquisitions that we did Apryl in terms of a global acquisition, product expansion beyond the fertility and family- building, offering they already have and be able to do that across the 100-plus countries that they service is a piece of it. It's taking advantage of BenefitBump and the lead navigation services plus the parental leave offering, expanding that, taking the entirety of all of our solutions and creating an integrated digital experience so that we have a second-to-none member experience on a digital side while we also have second-to-none patient concierge services, high-touch services, anxiety support, stress support, etc., all the things that go with it. It's investing in all of that so that we have a platform that continues to be able to service future expansion, product expansion in a seamless and efficient way.
I think we just spent our time in the interest of getting everyone on the elevators. Pete, Mark, Michael, thank you so much for being here. Really appreciate the time.
Thank you so much for having us.
Thanks, Mike.