Welcome. Thanks everyone for joining. My name is Scott Schoenhaus. I'm the healthcare tech analyst at KeyBanc. My pleasure to have Pete Anevski here, CEO of Progyny. I think Progyny needs no introduction, but maybe just a brief background. It's one of the largest, if not the largest, fertility IVF benefit partners, only publicly traded platform. You guys just wrapped up your selling season and started your launch of your new cohort. Pete, maybe let's dive into there. You reported fourth quarter earnings. You noted a stairstep function down in the number of eligible lives from 90 days ago, mostly around sort of administrative nuances with some of your clients in terms of headcounts.
Maybe walk us through that a little bit first, and then we'll have some other follow-ups. Maybe talk about what kind of led to that, I think it was $400,000, or 400,000 live reduction, from these sort of, you know, administrative finalizations or corrections from some of your employer clients.
Yeah. It's exactly what you're describing. We get different clients report on different frequencies, but we get at least once a quarter lives reported. We generally don't focus on that count. We focus on actual use. Looking in from the outside, understandably, look for that top line metric because for them in their models, that's sort of a top-down input. For us it's an output. Just to calculate a utilization rate, when your utilization rate is in a tight range as it's been for us, for years now, in that 1.03- 1.08, 1.09 range. It has been in sort of that tight range and still is.
It's why we don't sort of focus on that because it's not. We're not getting eligibility files, we just get counts, right? When we look at what's happening in the business, we look at the trend of utilization in the existing base, in terms of actual utilizers, the trend in sort of what those actual utilizers are doing, and stare at that always relative to what's happening versus, you know, the majority of those top line sort of populations, who don't utilize the benefit when you're at a utilization rate of barely 1%, if that makes sense.
Yeah. Let's talk about that more. I think you made the comments last, this past quarter that the attrition mostly came from lower utilizing clients, and that the new cohort of sign-ons that you had from the selling season were relatively good utilizers, however you wanna describe that.
I would say as expected.
As expected. Yeah, that's how you said it.
Yeah.
Yes.
Yeah.
I mean, but if we back into your guidance, which was on the revenue side, you could assume that utilization is based on the number of lives and where your revenue targets are for this year. Utilization's running pretty nicely in comparison to that, we'll call it air pocket of demand dropping in 2024, I believe it was. To me this seems like, you know. We all know that the macro is softening, right? We all see the jobs reports coming out. To me, as someone that knows IVF and knows your business model, to your point, it is about utilization.
It seems like what we're seeing so far from this new cohort based on all the metrics you provided in your guidance seems like utilization is running pretty nicely from this new cohort. I guess when would you see. If, you know, if you're looking for the first quarter in terms of utilization trend and you're seeing, you know, you're going for your first appointment to your IVF clinic, your consultation, which is a very low revenue contributor. When would you ordinarily see potentially an inflection in when we're talking about new cohorts. I know, for example, that your legacy cohorts are obviously still using your IVF services.
For your new cohorts, maybe it's important to walk through for investors that have never done the IVF process, like how long that takes to actually see your real revenue-rich procedures such as egg retrievals, egg freezing, and embryo creations. When we should start seeing that funnel through from the new cohort? When do you typically see that run through the system, Pete?
Yeah. I would say the easiest way to frame it, 'cause you have to think about it vis-a-vis when we, you know, reporting results, right? Quarterly cutoffs. That gives.
That's an important nuance, yes.
Yes. I would say you generally gonna start for a small portion of the population who starts out doing an initial consult in the first quarter, which whether it's new clients or existing clients, right? These are, you know, view them as sort of the individual people, right? The number of people that are gonna do the consult and then start the treatment in the quarter is smallest in Q1. Right? You'll start to see them utilize the benefit in Q2 through Q4. Now, when I say Q2 through Q4, what does that mean? It's everything from they could start a retrieval cycle in Q2 and do the transfer in Q3 or Q4, depending on whatever they have going on in their life, right? Similarly, they could start even for egg freezing, same thing.
They could do more than one retrieval before they do a transfer. Many do. The average, I think, for us is roughly 1.8 retrievals per live birth. Don't hold me exactly to that number, but I'm close. So you're generally gonna see, you know, more than one retrieval and then the transfer down the road throughout the year. Now, depending on when you start, that's the same. Meaning, if you start and do an initial consult in Q2 or Q3 or Q4, you sort of see that same, you know, one or two quarters later where you start to do the medical treatment versus when you do the consult. The uniqueness of Q1, whether it's new client cohort or existing, is that it has the highest proportion of those that begin their fertility journey versus any other quarter, right?
Every quarter has new people beginning their journey, and then the same sort of cadence, you know, slightly adjusted for things like the holidays where you may wait and not do a transfer or a retrieval or the summer months if you have a vacation coming up or whatever. Then for an individual person, you could have a wedding or something that you're sort of, you know, a family member or whatever. So, you know, that's generally. It averages out roughly what I'm saying where some small portion will do it within the quarter, but most will begin a quarter later.
Depending on sort of what their journey is, whether they have more than one cycle, that's where that cycles per utilizer data point that we put out comes in.
Remind us what metrics you're using, which data you're using when you onboard these new clients and you're trying to measure for the year, you know, the appropriate utilization metrics?
Yeah
to get to your revenue metrics. Remind us of all the inputs that you're looking at. You know, like I guess it's for the first two months of the year.
Yeah. It's a great question. Remember, we have years of data that we look at when we look at the data, both for existing clients, which we have experience with at that point, right? Also for the new clients, we look at the industry data and the clients by industry, and we look at what's happening with those clients vis-à-vis the industry that they're in and what we generally expect to see from those first-year clients from that industry, right?
The forecasting algorithm takes into account all of those types of data points, exactly what they're doing, exactly which portion of that population is doing a consult versus a treatment, is the cycle elongated or not, vis-à-vis their next scheduled appointment, even if it's in the next quarter, small portion in the quarter, et cetera. All that's taken into account. We use past history that's generally been a good predictor of what to expect for all the cohorts, whether they're existing clients or a brand-new one, but looking at what first-year client behavior is like, and again, down to the industry level, in order to use that to predict what we expect for the quarter and the year.
For the most part, we're generally pretty good, even with a year like 2024, we had sort of the utilization dip in the middle of the year that came back by the end of the year, started coming back by the end of the year. That year was unique and the best guesses are the political environment impacted that. Other than that, the methodology has generally proven out. We're constantly, as you might imagine, refining it with more and more data each year. If you add another sales year cohort, each year you get smarter and smarter at doing it. At a high level, that's how we do it.
Yep. Okay. I wanna move to your fully insured program, the Progyny Select. How has this go-to-market strategy been going so far? This is your first year launching it. Obviously, you go live with this product in 2027, where you'll actually reap revenues from it. Maybe walk us through the process of what you're seeing right now in this go-to-market strategy, where you're seeing the most success, where you're seeing some challenges. You know, maybe we could talk about the risk based model, financial model that you're employing and how you're trying to mitigate as much as possible the downside risk in the model. Let's just start, I guess, with what you're seeing as you launch this product this year.
Yeah. Let me, I'll go through first, the go-to-market, and give some clarity around what that is for this product.
Yes.
We'll get to the product design and what's there.
Perfect.
F rom a risk perspective. This product will be sold and distributed through the same partners that these small group employers use to buy their premium-funded medical plans today, right? They generally buy through brokers or the, you know, the consultants within those payer environments, right? But either way, they generally buy their small group plan through these different, you know, again, I'll call them in totality, individual brokers. Those brokers are part of a network that the general agents or the PEOs or the payers that have, and all of them do, have a fully insured plan buy through, right? This would be an extension of that service.
The sales process is to sign up the distributors first, again, general agencies, the PEOs, or through the payer relationships that we have. And then train those brokers that are gonna be ultimately interfacing with the clients. And do that so that they're ready for the sales season, the biggest sales season that matters, which is in Q4, which is the renewal season for these small group clients, which the majority of which are a one-year plan year, right? No different than even ASO clients, but even more so probably in the small group world, where they're generally a one-year renewal period. And they generally do that in the fourth quarter of the year, right? The feedback we're getting so far is with
from the distributors versus it being in front of actual clients yet, 'cause it's not. The process is get the distributors signed up, get the brokers trained, and ultimately get them, you know, get the product in the renewal portfolio, renewal basket, et cetera, for client renewals, in the upcoming plan, you know, 2027 plan. That's the first part, so I can pause there.
And, and just to.
Yeah.
Just to put a cap on that's the commission-based structure where it's, it shouldn't be this upfront expense on the sales and marketing go-to strategy because of that model.
Yeah.
It's all a commission kickback. As the revenue comes in, the kickback comes through the commissions, right?
Yeah, yeah. You're absolutely right on that. There's a little bit of upfront and it's in our guidance.
Right.
Relative to our sales force that's addressing these distributors and the support staff that's gonna you know assist in all the training et cetera to help these distribution partners be effective. That's embedded already in the P&L. There's no variable expense you would expect in this year relative to this product.
Perfect. Just wanted to clear the air there, and then maybe, yeah, you can touch about the risk.
Yeah. It's a premium funded product. We have a lot of data over the years, including with smaller clients, that we use to underwrite the product. The product has designs in it to mitigate some of the utilization risks that we're taking. Well, a couple things. One, this is not a product that's gonna be available to the ASO population that we serve today. Even if it was, chances are, for the same reason that they're an ASO client already, they're not gonna pay a risk premium to somebody, because they're already large enough to self-insure, right?
Yep.
That's the first piece. This is addressing the small group employer. From that perspective, you know, we have a lot of data with smaller clients in our client counts that we put out. We put out total lives, but we don't put out the counts of clients that we have that are under 1,000 lives, right? The inflection point usually is around 500 lives per employer, where they'll start to go ASO. Below 500, they're fully insured. Either way, we have a good amount of data, you know, to underwrite the product.
When an employer takes it's not like a traditional dental or vision plan, where they pick, the individual person says, "I'm gonna opt in or not and pay a monthly premium.
Right. Yep.
Everybody at that small group employer who's enrolled in the medical plan, they'll pay the PEPM.
Yeah.
For all of those people also, right? It doesn't include elective egg freezing as part of the product. It's IVF only. That's an important component of predictability in terms of understanding sort of what the need might be, especially as the risk pool gets big enough, right? It also has other guardrails in it relative to utilization management, relative to lifetime dollar maximums, et cetera, for high-cost claimants that are also built into it. Overall, if you think about it this way, right, we have experience, 10 years of experience managing large ASO clients across many different industries.
Just like we do it for them and on behalf of them and why we're successful with the 99% retention rate, because we do total program management for the client from a cost trend perspective, et cetera, that same skill will apply to our now population of fully insured to mitigate any surprises relative to utilization. Once the population gets big enough, and we're talking hundreds of thousands of lives, not millions, that population should perform no different than our book of business for our own risk, right? In the early days as it's growing, it may fluctuate. No big deal. It's not gonna impact us overall in any meaningful way given the.
It's such a small percentage of your overall market size.
You got it.
T hat even if you are downside on the risk for, because it's so early on, that it's not gonna be meaningfully. Then as it grows, you'll be able to manage that risk better, because you'll.
Yeah.
Have a larger population.
That's exactly right. The last piece, which is important, is the way these buyers buy. They buy on an annual basis. Every year, just like in their medical plan, their premiums are adjusted based on experience. Same thing will happen here. So even it's a year one risk for a small pool, but once it gets big enough, and the risk pool is big enough, it will, in my mind, won't matter, because at that point, you'll be large enough where you're gonna act like a large ASO client.
What are the barriers to entry for this growth? Is it just competition? Because there's more and more white space coming in the forms of state mandates. For example, California just issued, after years of trying to get this pushed through, but their budget was completely, as we all know, messed up. The IVF mandate, I think it covers three rounds. As you said, it's not covering preventive egg retrievals or egg freezings, just I think embryo.
IVF. Yeah.
IVF, yeah, embryo. This is a huge massive opportunity. If you look at the state breakouts from the CDC, California's by far the heaviest utilizer of IVF services. To have a mandate where every employer of a certain size has to cover three rounds, fully insured market, means to me a huge amount of volumes potentially for you. What is the barrier to growth here as you go down this fully insured market?
Well, it.
Is it more competition?
Well, it's no different than the ASO market. You're always competing with the large carriers, right? Let's start with that. That's the easiest way. We call it the easy button, right? Doesn't mean it's the better button, it means it's the easy button, right?
Right. Yeah.
It's all about education, awareness, and understanding sort of that there's a better solution for your employees. Educating the distribution partners and their brokers in the process in doing that is probably, at a high level, the easiest, not unlike when we started out in the ASO world, educating the benefit consultants around the need and that it could be done in a better way. I view this as, you know, a little different because you're dealing with, you know, maybe a larger, longer tail of brokers in this education process than the benefit consultants. The need is still the same. It's a human need.
As you educate them and as you show them and they understand, even from a business perspective, the retention rate that we get with our existing clients, that might be able to help them as they add this product on with their small group employers, that it could help them from a retention perspective because this population turns over. Turns over brokers, turns over carriers, etc. It's not unusual. Any product that gets attached to your medical plan that's unique to you as a broker at this general agent or at this PEO, etc., that might help you in retention could also help. It's awareness and education.
As we talk to the distribution partners, they believe it'll be slow adoption initially, and then will really accelerate hockey stick-wise over, you know, over time, is sort of what their expectation is. You know, knowing their broker community.
You know, it makes sense to me at the beginning managing risk could maybe be there's more downside versus upside or however you wanna phrase it. As you grow this business, to me, there's a vast opportunity to actually for this business to be margin accretive to your overall margins. Do you see a potential for this fully insured business, if you can do it right and execute on it right, to be margin accretive to your overall margins?
Is that potential there? Yes. We will always be smart about that.
Always.
The, vis-à-vis.
Sharing the ROI, sharing it with your customers and.
Yeah. In the fully insured world.
To ensure retention.
Yeah, absolutely. I didn't mean to cut you off. Absolutely, in the fully insured world, it would be the same, and here's the way to think about it. When we price it, when we underwrote it and saw the opportunity, it was a function of what percent of overall premiums are you paying? What will this increment be, right?
Yeah.
If the increment is small, and you keep it small as a percentage of your overall medical and pharmacy spend, from a premium perspective, that's what you wanna do. If you could do that and keep it there, but also be accretive, of course you're gonna do that, right? From the perception of the buyer, you wanna make sure that the buyer understands that there's this is relatively inexpensive given how important it is for this important population, the 30-42-year-old range of employee, that is your middle management, that is the glue that sort of holds your company together. That's your, you know, more experienced, employee. It's an important segment of your population that you could address for a nominal increase in the overall plan cost.
That's the way to sort of think about it. Yes, it could be, but you know, we'll see what happens. We're always conscious of what the market will bear, and price accordingly.
Understood. I wanna touch about TrumpRx . You know, now we're in, you know, March here. What are you guys seeing on that front? Are you hearing anything anecdotally about employers trying to offer just a straight kickback, subsidy to employees to go and pay cash pay and go through the TrumpRx portal themselves? I'm sure you got a million of these questions down in Miami, but maybe touch about the TrumpRx factor that everyone wants to talk about.
Sure. Here's one really important thing that people should understand about the drugs that are included now in the TrumpRx related to fertility. One, all the drugs that you need for a cycle aren't included. There are other drugs.
Right
in the, you know, I call affectionately the cocktail.
Medicine. Yeah.
There's medications within fertility treatment that are always used that aren't included in TrumpRx .
100%. Yep.
The one company doesn't have them all. Second, this is just an extension of a patient assistance program that is not available to those with coverage, including reimbursement. So much so that on the invoices that they get at the specialty pharmacies.
Pharmacy
T hat are included in the program, it's printed on the receipt that says, "This is not available if you're getting reimbursed.
So.
If you're getting reimbursement, right? It's that clear that it's literally put on the receipt to the employee. If they're submitting it to their employer for reimbursement, their employer would have to ignore that reality. Who knows, some might, some might not. Either way, it is not designed for those with coverage. Even if the coverage comes in the form of cash reimbursement, that's still coverage. It's a patient assistance program for those that don't have coverage.
Don't have insurance. Okay.
Right.
Yeah
T hese programs have been around a long time. All that's happened is the TrumpRx announcement has just shined a light on patient assistance programs. These have been in existence longer than we have, right?
Yep.
Is the way to think about it. That's why it's not expected to have an impact on our business. So far hasn't been.
Great. Let's see. Oh, we hosted a fertility panel discussion. One of the topics that I thought was really interesting that came up was on data. Being able to leverage data to be more preventative and helping to reduce the back end of costs. You guys are uniquely positioned to have a lot of patient data. Wondering how, you know, how you view your platform evolving with technology and more data and AI, and how you're deploying that. Because to me, this seems like a really easy way to get better clinical outcomes by being more preventative with fertility treatments.
Here's how we're doing it here, right? The AI and data and technology investments that we're making, they're all sort of intertwined, right? They're not, you know, in and of themselves. Are gonna augment every service for every type of client every employee here has. Whether it's an internal client, whether it's the providers in our network, whether it's the actual clients or the patients that we engage with, right? It's gonna augment and make everything we do better, right? The simplest way to think about it is, as you're on a fertility journey, right, there's a lot of what I call homework. I.e., things that the patient has to do through that journey that could be helped, removed, automated, et cetera.
Totally.
Making that journey even more frictionless than what we already accomplished to date. There's recommendations around next best action of what makes sense, that's powered by all the data and technology that we're talking about, as you're going through that journey as another form of what you can do. There's how we service our clients. There's how we partner with our providers, and help relieve some costs for them. That puts you in a better negotiating position in the future, right? All of those types of things are exactly what we're gonna do, and are building with our current investments, and training our employees in how to think, you know, free up the rote tasks, manual tasks, simple tasks.
Automate them so that you can do a better job servicing your respective clients, internal or external, in the complete picture of what we do.
We're getting close to the 35-minute mark, Pete. When I think about competition, you know, you lost a client to a competitor that's maybe described as someone that does that that wants to avoid the full clinical IVF procedures, and is a cheaper option in that way because they're capitated. How do we think about the competitive environment? Clearly you had a robust selling season that came in way above expectations, so clearly there is a demand providing these kind of sort of more premium coverage that you offer. What are you seeing in the competitive landscape? Do you have to adapt?
I know in the past you've said, "We're never gonna adapt to this model." What are we seeing in the competitive landscape out of this selling season that you can give us, as this last question here?
Yeah. I would say if I compare this past season versus the season before or the past couple of seasons, it's no more competitive than it's been. We continue, for everybody in the pipeline who makes a decision on what they're gonna do with the benefit, we continue to win the majority of the time versus everyone else collectively. We're starting to see some challenges, including one small competitor who went bankrupt during the year last year. Others who are having some challenges in their models in terms of cash burn and the ability to continue to raise funding, et cetera. That is starting to create some noise. We'll see what happens.
I would say, competitively, I think a lot of these competitors potentially, you know, if you look at their models combined with what they're burning, combined with how much they're trying to do with the funding that they have, I think they're, you know, that creates some challenges, right? Either way, we don't feel any more competition, and in some areas a little bit less is probably the best way I could describe it. I mean, we continue to be able to invest in our offering, like I talked about, just now in terms of what we're gonna be doing, and continue to do and continue to make every part of our offering that much better and continue to increase the moat versus competitors.
Yeah. Well, we'll end it there. Pete, thanks so much for doing this fireside chat. I really appreciate it. If you have any follow-ups, please don't hesitate to reach out to me directly. I guess I'll see you later tonight. Thanks, Pete.
See you later tonight. Thanks for having me.