Good afternoon, ladies and gentlemen, and welcome to the Progyny Incorporated First Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, James Harte. Sir, the floor is yours.
Thank you, Catherine, and good afternoon, everyone. Welcome to our Q1 conference call. With Before we open the call, brief questions. Before we begin, I'd like to remind you that today's call contains forward looking statements, including, but not limited to, Statements about our financial outlook for both the Q2 and full year of 2021, the impact of COVID-nineteen on our business, clients, member activity and industry operations, Our ability to acquire new clients and retain existing clients our market opportunity, size and expectation of long term growth Our corporate governance plans, business performance, industry outlook, financial outlook, strategy, future investments, plans and objectives and other non historical statements as further described in our press release that was issued this afternoon. These forward looking statements are subject to certain risks, uncertainties and assumptions, including And projections about future events and financial trends that we believe may affect our business, financial condition and results of operations.
Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10 ks. During the call, we will also refer to non GAAP financial measures such as EBITDA and adjusted EBITDA margin. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors. Progyny.com.
Will now like to turn the call over to David.
Thank you, Jamie, and thank you everyone for joining us today. We are pleased to report a solid start to the year, Reflecting record quarterly revenue, strong utilization and the continued expansion of our margins. Mark will walk you through the details of the results in moments, but here are a few of the highlights. Revenue grew 51% over the Q1 of last year to 122 point Not only the addition of our newest clients, but also the organic growth we've seen within our existing base as our clients have continued to expand their workforce over the last year. Art cycles in the quarter grew 48% to nearly 6,600, which is the most cycles we've ever managed in the quarter.
Female utilization ticked up on a sequential basis from the Q4 of 2020 to 0.47%, Demonstrating that fertility continues to be a priority for those who need treatment in order to start to build their families, even against the backdrop of the ongoing pandemic. And lastly, adjusted EBITDA in the Q1 more than doubled to $17,300,000 and our margins increased over the Q1 last year. In addition to these strong results, during the quarter, we also successfully ensured that the onboarding for the 44 new clients who went live with their Progyny benefit went seamlessly. From an operations perspective, the Q1 will always be critically important to us because unlike businesses that grow ratably The substantial majority of our new clients begin their programs with us on January 1. As a result, we need to prepare in advance for step function increase overnight in our business volumes, which demands that we have the necessary processes and personnel in place to ensure the smooth launch of each As we have done in the past, this year we have successfully completed our newest implementations and have been managing the increased volumes of activity, while also maintaining a focus on the service levels for all of our clients, both new and existing.
Each year, one of our strategic priorities is to ensure that we not only maintain the industry leading service levels our clients have come to expect from us, but we identify specific issues that are important to them and to further reinforce the unique benefits of our solution. These reviews typically happen during the Q1 and One of the recurring themes we've heard from clients so far this year is that Progyny has distinguished itself by being one of the few or even only health solution provider where the clients aren't hearing employees report negative experiences during the COVID outbreak and remote work environment. The result of this feedback is also demonstrated in our NPS score this quarter, which increased to 81 for fertility services, which is the highest it's ever been. This exceptional result indicates that members continue to rate Progyny at or near the highest possible scores, which we believe reflects The quality of the service we are providing as well as the outcomes we are achieving. I'll spend a few moments discussing each of these starting with the quality of our service.
One of the core components of our service is the unprecedented level of patient education and support that we provide to help members navigate through the complexities of their fertility journey. By now, many of you are familiar with the role our PCAs have in providing this service, But you may be less familiar with the other ways we are supporting our members. For instance, we routinely hold events to provide members with relevant topical information on issues of importance to them. Recently, we've held webinars examining issues of infertility and maternal health in the Black community, fertility preservation that our members are very diverse and have many different perspectives. As just one illustration, we enhanced our content geared to the male partner in Turning now to our outcomes.
The CDC and the Society For Assisted Reproductive Technology recently released their latest fertility data, which Our pregnancy rate is now 16% better than the national average and our miscarriage rate is 26% lower than the national average. As a result, our live birth rate, which had been 23% better than the national average a year ago is now 25% better. In practical terms, our higher live birth rate translates to meaningful financial savings because the client needs to fund Significantly fewer rounds of IVF treatment with Progyny than they would otherwise would in order to help their employees achieve their family building goals. An important point to note is that Progyny's live birth rate has improved 14% since 2016, while the national average has remained This shows that we've been improving while other benefit managers have not. Lastly, our single embryo transfer rate Now exceeds 90% and our multiples birth rate, which at 2.8% is close to the natural twinning rate is now 72% better than the national average.
Medical cost savings for Progyny clients because they avoid those substantial maternity and NICU costs as well as the chronic care costs that are associated with low birth Ladies that often result from twin and triplet pregnancies. Let me now turn the call over to Mark to walk you through the quarter. Mark?
Thank you, David, and good afternoon, everyone. I'll begin by walking you through our Q1 results and then provide our expectations for the Q2 and the full year. In the quarter, revenue grew 51% over the Q1 last year to $122,100,000 This growth was primarily due to a higher number of clients and
covered lives, though as
we previously reported, revenue in the prior wise, though as we previously reported, revenue in the prior year period was negatively impacted by lower utilization when fertility clinics temporarily closed at the onset of the COVID-nineteen pandemic. Breaking down the components of the Top line, medical revenue increased 50% over the Q1 last year to $88,900,000 Pharmacy revenue increased 54% in the to $33,300,000 While we continue to be very pleased with the progress of pharmacy adoption since we launched the service in 2018, There remains a future upsell opportunity to more than a quarter of the client base. As of the end of the quarter, we had 179 clients, representing an average of 2,700,000 covered lives during the quarter. This compared to 132 clients and an average of 2,100,000 covered lives in the Q1 last year, reflecting growth of approximately 30% in covered lives over the past year. Taking into account the clients who launched their benefit Following the close of the quarter, we now have 180 clients, each with at least 1,000 covered lives.
Turning now to our utilization metrics. There were 6,558 art cycles performed during the Q1. This represents our highest ever quarterly total of cycles and reflects a 48% increase as compared to the Q1 of last year. The female utilization rate this quarter, which is what really drives our financial results, was 0.47%. This compared to 0.41 percent utilization from a year ago.
Again, utilization in the prior period was negatively affected by the Temporary disruption in fertility care caused by the onset of the pandemic. However, we continue to believe that our current utilization demonstrates that Progyny's fertility volumes have effectively recovered, reflecting both the essential nature of treatment as well as its time sensitivity. As a reminder, utilization rates will vary from quarter to quarter due to a number of factors, such as when new clients go live, the time the year and the demographic mix of the newest clients. Turning now to our margins. Gross profit increased 74% from the Q1 last year to $28,900,000 yielding a 23.7 percent gross margin, an increase of 3 20 basis points from the year ago period.
The increase is due to favorable new terms with our pharmacy program partners, the net impact of regular contract renewals with our providers, as well as the continued efficiencies we have realized across our care management services. As a reminder, our margins in the Q1 of 2020 We're negatively impacted by our decision to keep all of our employees in place, including our care management staff, despite the pause in treatments at that time due to the onset of the pandemic. Turning now to our operating expenses. Sales and marketing expense was 3.3% of revenue in the Q1, reflecting a 70 basis point improvement from the year ago period. We continue to see improving operating leverage in our and marketing functions as we scale and benefit from our near 100 percent client retention rate.
G and A costs were 10.7 percent of revenue This quarter as compared to 12.2% in the year ago period, reflecting the inherent nature of expanding margins on G and A as we grow our revenues. With our strong top line performance and the margin improvements across the business, adjusted EBITDA more than doubled this quarter from $6,700,000 a year ago to $17,300,000 this quarter. Our adjusted EBITDA margin of 14.1 percent this quarter This quarter was 25.7%, reflecting the favorable comparison to the year ago period when Margins were negatively affected by the temporary pause in treatments. Net income was $15,200,000 in the quarter or $0.15 per share. This compared to net income of $3,600,000 or 0 point 0 $4 per share in the year ago period.
Our improved net income and EPS in the current period The favorable results I just described as well as a $6,500,000 tax benefit due to higher than estimated deductions on equity compensation activity. Turning now to cash flow and our balance sheet. Operating cash flow during the quarter was $500,000 which compares to $12,100,000 in the year ago period, which for our pharmacy partner arrangements and the ordinary impact to operating cash flow associated with our growth. The timing change associated with our new pharmacy arrangements is also expected to result in a use of working capital in the second quarter. We expect operating cash flows to return to normal by the Q3 of this year.
As of March 31, we had $106,900,000 of cash, cash equivalents and marketable securities. Turning now to our expectations for the Q2 and full year 2021. As always, our guidance is based on the level of member activity that we are currently seeing. For the Q2 of 2021, we are projecting revenue of between $126,000,000 to $131,000,000 reflecting growth of between 95% and $8,800,000 or between $0.06 and $0.09 earnings per share on the basis of approximately 101,000,000 Fully diluted shares. For the full year, we continue to expect revenue of $520,000,000 to $540,000,000 reflecting a growth of between 51% 57%.
Given our strong start to the year, we are raising our profitability guidance for 2021. For adjusted EBITDA, we now expect between $70,000,000 to $75,000,000 and for net income of between 34.3 to $42,200,000 or between $0.33 $0.41 earnings per share on the basis of approximately 103,000,000 Fully diluted shares. In both the quarter and the year, our net income ranges do not reflect any estimate for discrete income tax items, including tax impact related to equity compensation activity. At the midpoints of this guidance, we are expecting to see continued expansion of our margins in 2021 with adjusted EBITDA margin on incremental revenue of 21.7%. Let me now turn the call over to Pete.
Thanks, Mark, and good afternoon, everybody. I'll begin with some qualitative commentary about our selling season as it relates to generating new business. When we spoke to you last quarter, even though the selling season hadn't yet begun, the preliminary discussions we've had with benefit consultants and prospects revealed their hopes that 20 Selling season has now begun and although it remains very early at this point, we are pleased to report that so far things are feeling more normal. It appears as though companies are increasingly able to think about what the world looks like for them and their employees post COVID. A year ago, many of new prospects as well as reengaging with the deferred accounts who have given us the not now response in the previous selling seasons.
Our sales team is building pipeline of responding to RFP opportunities, engaging directly with accounts and fielding introductions made by the benefit consultants on our behalf to potential customers. The early activity we've seen through these combined channels so far has been very positive and pipeline additions and early sales commitments prior year and in line with our internal expectations at this point in the sales year. As a reminder, the goal of the sales season each year is to Grow the absolute number of new clients in covered lives each year. Obviously, last year's season became an anomaly because of how COVID affected the prospects in Pipeline, so we're looking to 2019 as the baseline from which we are benchmarking our sales growth
and we believe
from a new sales with you on our Q2 earnings call, but we continue to expect that the majority of client decisions as in prior years will be made at the end of December or early fall Another potentially important development for the selling season is the launch of our newest channel. During the quarter, Progyny was selected to be the fertility and family building benefits offering within CVS's HealthPoint Solutions Management Program. If you aren't familiar with this program, it's a full service offering from CVS Health that helps plan sponsors, including the large self insured employers in our target market to simplify contracting, secure the lowest price and monitor the ongoing performance for a variety of point solutions in healthcare. Some of the other solutions in this program address heart health, mental health, weight management, stress management and musculoskeletal conditions. We're incredibly proud that Progyny has been selected to be the fertility and family building benefit solution in this program as it recognizes that our offering meets security and business evaluation process.
If clients who choose to add 1 of the available solutions then benefit from the ongoing monitoring and offset and oversight to ensure In short, this is an important validation of both the quality of our service and the superiority of our outcomes, which David discussed earlier. Our inclusion in the program makes Progyny available to CVS Caremark's commercial self funded clients, some of whom we had already been pursuing and significantly the sales process for these accounts. We're enthusiastic about the potential for this relationship, and we look forward to partnering with CVS HealthPoint Solutions Management to bring our leading fertility benefit solution to their clients. It is important to note that the launch took place after our 2021 2021 selling season had already begun. So while we could see an incremental impact to our 2021 sales season, it's too soon to know whether we'll to see more of the benefit in future selling seasons of this one.
To conclude, we're very pleased with our results this quarter, which demonstrate that we have continued to against all of our strategic initiatives. In addition, we continue to believe that Progyny is in its strongest ever competitive position, that our market opportunity remains was unpenetrated and that all of the macro factors that have contributed to our growth remain intact. With that, operator, we'd like to open up the call
Please hold a moment while we poll for questions. Your first question is coming from Stephanie Davis with SVB Leerink. Your line is live.
Hi, guys. Thank you for taking my questions. Congrats on the quarter.
Thanks, Stephanie. Thank you. Thank you.
So I think anyone on this call would be hard pressed to say they haven't at least been invited to a DE and I initiative at their firm. With that in mind, how does this impact your messaging and maybe the sales force education process in the upcoming selling season?
So it's a good question, Stephanie. So we at Progyny kind of since the beginnings of the company We have been very focused on equity as it relates to fertility benefits and making sure that our customers understood that our benefit is designed to Work for all employee populations and not just have equity across employee populations, but make sure that there was equity also with respect utilization of the benefit. So by having a cycle based benefit versus a dollar based benefit, We can make sure that everybody gets the same number of chances to build their family regardless of how complex their case is or where they live in the country, Given that pricing did vary so dramatically by region. But we've really kind of we've continued to evolve how we help companies a debt diversity, equity and inclusion perspective, one of the things that's really come out in the past year is that and that people are talking about that There are historically have been very significant race differences As it relates to healthcare and healthcare outcomes, and that also applies to fertility. So with fertility, we know that People in the Black community have the higher incidence of infertility, a significantly higher incidence of infertility, but also they have a lower incidence of treatment for infertility.
So we're making sure that, in addition to the structural things we've done to make sure that our benefit is Really competent and sensitive way. So we're training our we've trained our staff and we're working on ways to help address those racial disparities as it relates to health access to health care and health care outcomes. So and obviously, this is a conversation that we have with our customers and prospective customers. We know these initiatives are important to them. And again, we're trying to help them with their initiatives.
And as I just said, we're To evolve as the requirements for DEI continue to evolve with us. So beyond kind of how we've trained the Staff, we're also doing things like creating content, podcasts, webinars, live events that deal with some of these issues so Our members can be educated about these issues and understand how they can actually help themselves address Some of the disparities that have existed, but clearly the trend and focus DEI and Corporate America and as it relates to benefits is an important tailwind to the business. And again, so one that we very comfortably fit into.
And just a follow-up on that one. For the sales process, I imagine it's also probably a little bit different than just a feed on the street model. There's different channels Then if you could talk to about sort of D and I and inclusion initiatives. Have you explored any of these channels? Or is that something that's going to be Future opportunity.
No, we certainly and again, it's been part of the DNA of the company. We're comfortable having conversations With Chief Diversity Officers, for instance, at our corporate clients. So certainly, we're making sure that our clients And how adopting a benefit like the Progyny benefit can help them further their own DEI initiatives. So it's really been part of who we've been evolve and make sure we're addressing those issues also.
Super helpful. Thank you, guys.
Thank you.
Your next question is coming from Ann Samuel with JPMorgan. Hi. I was hoping
Great. Thank you. I was hoping you could provide a little bit more detail on the margin improvement, really nice incremental margins this quarter. What changed with the pharmacy terms? And then as we think about your high teens longer term target, is there upside to that now?
Thanks.
By the way, welcome back. Nice to hear you again.
Thank you.
No problem. So, Latin versus The original guidance that we put out in early March, we were in a process around the entire supply chain, around our pharmacy program. We had RFPs out there, and so that process didn't culminate until really the end of the quarter, beginning of part of it the end of the Q3, part of beginning of the 4th And the long short of it is, is it ended up being favorable to what we had insight into earlier. Q1, Q2. Yes, sorry, Q1, Q2, apologies, and was favorable to what we had visibility into when we put out Our guidance.
So that's where the improvement came from. And then to the extent That we're able to continue that type of improvement. Yes, it could raise sort of the long term view of where we might get Ultimately, but as we haven't really sort of updated that long term view except for when we were On our roadshow, going public, what we'd rather do is continue to point out the leverage and expansion in margins that we're able to achieve and continue to focus on the overall business and what we could do as opposed to sort of just setting targets. But it's certainly indication that, that could be the case.
That's really great. And then maybe just on utilization, how do we think about what happened to those cycles maybe didn't happen during COVID. You're back to baseline now, but is there any potential for those loss cycles to come back?
There always is the potential, right? The question is and the challenge has always been for us, how do we quantify how many loss cycles there were, how many of them have already come back, how many of them are coming back slowly, etcetera. And so the difficulty is We don't know exactly because we only know those folks that we talk to, not the members that we don't talk to that are pausing On their own and not calling us. And so it's really difficult to get visibility into how There may still be members that are sitting on the sidelines, if you will, either if they had a need the moment and how many more of them may come back as vaccines roll out, etcetera. So I wish I could quantify that.
If I could, I would bake it into the numbers, But certainly, possible. I just don't know exactly how and when to quantify that.
That makes sense. Thanks, guys. Your next question is coming from Ralph Giacobbe from Citi. Your line is live.
Great. Thanks. Good afternoon. So I guess, obviously, strong top line number in the Q1. Guidance for the Q2 also looks like it's ahead, but you did keep top line guidance unchanged.
Just hoping anything to sort of call out to reconcile As I would think, 2Q could have been sort of the pause quarter, if you will, on hesitancy due to vaccinations, but that doesn't seem to be the case. So Anything else in the second half that sort of hold things back a little bit?
Nothing at all to read into relative to our Q2 guidance and our full year guidance versus our Q1 results. We're not holding back, if you will. We're projecting based on Normal utilization patterns that we see and how they give us indication as to what we might expect in the back half of the year. Historically, there is first half, second half sort of seasonality, if you will, relative to how When the new plan year turns for both new and existing clients, how members utilize the benefit. But other That really nothing I wouldn't call it holding back, I would call it this is the best visibility that we have and the best guidance we could put out there relative to that visibility.
Okay. All right. Fair enough.
And then just on the pharmacy contracts, maybe just remind me how the economics Well, on that Rx benefit, is it just a markup? Is there any pass through? It doesn't seem like there is or what is the pass through essentially Customers versus what you keep? And then you also mentioned contract renewals with your providers. Is that just Annual update, was there sort of a greater portion up for renewal given everything that happened last year?
And certainly, it doesn't seem like there's pressures there, but And maybe anything in your discussions on whether there is or could be more on rate that they're looking for? Thanks.
Well, we don't quantify how much we do. We don't pass back to our clients, but we do adjust prices when we have favorable economic arrangements, the majority of sort of what we get, if you will, economically, we Share with our clients, we've been doing that for years. It's also what we're doing this year. And Whenever we have an opportunity to do the right thing by our clients, we do, do that. But at the same time, we do have a focus on sort of growing The business and growing margins sort of overall incrementally over time.
The provider side, just Recurring provider negotiations.
Yes. The providers all have different and that's why we sort of called it normal recurring negotiations. The Providers all have different contractual start and end periods. They're generally 2 year agreements. And so they all sort of every quarter Cycle in and get renegotiated as you said they're in the network.
The thing that changes and could impact any period is The volume of providers that may have a higher volume of our overall members going to them and therefore could have a bigger impact in any one period, etcetera, in terms of what gets negotiated within Order, but for the most part, it's normal recurring contract and rate discussions, Generally, a data driven discussion with our providers that we've been doing over the years.
Okay, got it. That's helpful. Thank you.
Thanks, Ralph.
That concludes the Q and A portion for today's I'd now like to turn the floor back over to James Hart.
Thank you, Catherine, and thank you, everyone, for joining us this afternoon. Please, if you have any follow-up questions following the call, don't hesitate to reach out to me, and we look forward to speaking to you again next quarter. Thanks again.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.