Thank you for coming to this session of the Bank of America Healthcare Conference. I'm a healthcare technology distribution analyst here at Bank of America. Much more importantly, though, we have the team from Progyny here. Pete Anevski, who's Chief Executive Officer, and along with multiple other roles he filled previously. Mark Livingston, Chief Financial Officer, and Michael Sturmer, who is one of the newer joiners of the company, President of Progyny. They prepared nothing, which is what I asked them to do. We're gonna come right into the discussion. I guess, I mean, just given the timing, you reported earnings 24 hours ago. You put up another of your, what I call consistent beat and raises.
Maybe just to level set, give everyone the highlights of what really stood out from the Q1 results.
Sure. We reported earnings last night. We ended up having 50% top line growth. Overall, EBITDA 87% growth. Had a real positive quarter from a cash flow perspective. Normally, Q1 for us as a quarter in cash flow is usually cash use. A year ago, we had cash use of $11 million. We had cash flow positive from operations of $21 million this quarter. All real positive things relative to what people generally watch and monitor for us. More importantly, we, you know, onboarded, you know, the record number of sales and lives that we sold in the 2022 selling season successfully last year. This year is sort of more traditional.
Last year was unique, where we had a significant number of clients coming on board throughout the year, in terms of larger clients with lives this year. Materially, all of our clients are now live that we sold in 2022, and that was also really positive. Overall, you know, we're real pleased with all the activity relative to our financial performance.
Maybe let's just start there with the onboarding. It's the first update that we had since you got everyone on board, then actually got some progress on them. Maybe talk about some of that early feedback. It's one of those interesting things that you're still adding such a material amount of new customers, new members every year, as you go with, you know, the 1.2 million or so last year. Maybe give us some experiences, especially as you get deeper and deeper into cohorts, as you continue to expand in terms of geography, in terms of types of customers you're adding, what some of the experience was like for the go lives.
Sure. The nice thing about as you continue to grow is you continue to have more and more experience with every individual carrier that you're integrating with, right? The important part of the benefit is that we integrate for purposes of member responsibility, with, you know, dozens of carriers, you know, all the BUCAs plus, you know, regional carriers throughout the country. The nice thing about that is as you continue to grow and have experience with them, you know, integrating and implementing more clients each year becomes not that much harder incrementally, even though the overall client growth means we had 105 new logos that we added last year compared to, you know, last year's selling season compared to 85 in the selling season before, right?
All of that is, you know, now with a continued experienced team that has more and more experience with every individual carrier, you can implement those. On top of that, you know, we do a lot of work during open enrollment season with these clients to make sure that their members are as educated as possible to the extent that they are already aware that they have the need for the benefit and are gonna start using it, you know, when the calendar turns. The PCAs help those new members and guide them through the journey like we always do with everybody, with every new member.
Even if they're with a new client or an existing client, they help guide them through the journey, guide them through taking advantage of the benefit that their company is offering. All that, you know, was successful for us, you know, given the selling season that we had.
Got it. We're almost certainly gonna come back to selling season comments, but I wanna dive a little bit more in terms of the base business and particularly start on utilization. I think if you walk into almost any presentation at this conference this week, and there was some type of utilization question asked, and your utilization's unique in the sense that it's very obviously condition-specific versus everything we see from broader hospitals, med tech companies. I mean, I guess maybe give us an update on what you're seeing in utilization right now and if there are any lingering or lagging effects from COVID or from anything else that's impacted what you think should be the base utilization rate.
Yeah. I'll start with the COVID thing first. It's definitely not COVID overhang, right? COVID for us, relative to what we saw in impact on utilization, the last impact that we saw that was measurable for us was the end of Omicron, which was sort of the, you know, H1 of Q1 2022, right? Anything that was lingering from that worked itself out by, you know, probably the end of Q2, if not Q3 of last year. It's not that. What we are seeing is utilization getting stronger, that started probably the back half of last year. Now it's not like hugely stronger, but it's incrementally stronger relative to what we were seeing sort of, you know, the three or four quarters before that. It's enough that it's noticeable.
And this year in particular, utilization got stronger from what we were seeing for the first six weeks of the year, which is what we use to basically, you know, guide when we report year-end results and guide, you know, Q1 and the full year 2023. It strengthened even since then, through today, basically. As we continue to sort of look out to Q2 and then put out guidance for the full year, it's based on what we're now seeing, which is a consistent strengthening of utilization across the board. If you think about it's consistent with what you're hearing in terms of incidence and prevalence around the condition. The condition is now, one in six couples, you know, childbearing years suffer from infertility. That's a World Health Organization stat they just put out. The CDC says it's one in five.
four years ago, when we went public, the stat was one in eight, right? Incidence and prevalence is growing in a significant way. If you look at sort of the overall fertility rates in the U.S., natural fertility continues to decline. When you break it apart, 34 years and younger is where it's declining. 35 years and older is actually growing and been growing at a rate of 2%, 2+% a year, compounded over the last 10 years. That macro trend of people waiting longer and longer in life to have a baby and the biological clock being real, and therefore you're gonna tend to suffer from infertility more as you get older, is what's driving overall utilization to inch up.
We sort of been seeing it, you know, over the years, when you break down cohorts of clients, it's been the behavior going back to clients that started in 2016 and are still with us today. Utilization continues to inch up over time, and the biggest driver of that is the actual reality that people are waiting longer and longer to have a baby, and therefore need assisted reproductive technology to do it.
I think I saw some stat recently, and I hope I'm not misquoting it, but like, the average global age for having a baby finally got above 30 years old.
Yeah.
That was a couple years ago now.
That's a couple years ago. That's even new. What is happening is... Yeah. No, you're not wrong. What is happening, which is more important, is every year the average age of people having a baby is getting older, period. Right? That's not a U.S. phenomenon, that's a global phenomenon, but it's also happening in the U.S. You know, there is a reality to, you know, the trend continues, and if it continues and without full coverage and help, population decline is gonna be real.
I think two important things I'd just, you know, adding color to that is when Pete says across the board, and he was talking about already, it doesn't matter what year the client started with us, it doesn't matter what the geography is. There really isn't any differentiating factor. They're all having strong utilization right now, and I think that speaks to, you know, where people's minds are at as it relates to the economy, as it relates to looming recessions or whatnot. They're still choosing now to build their families and aren't really deterred by it. I think that's, you know, one of the important signals that we look at over the last six months of last year and now, you know, already into four or five months of this year.
I guess, too, is this something you said you're seeing cohort-wide? 'Cause, you know, so much of the growth that I've followed in the time since you've been public has been moving in from the coasts, you know, changing the demographic dynamics of some of the employers. Seems like there's really no abatement. Maybe there was some early spark from some of your really early customers and how widespread of their fertility services were used. Now it just seems like everything's consistent.
Yeah. From a utilization perspective, it's consistent. What you're describing is the phenomenon of coverage. Coverage started with companies that were primarily East Coast, West Coast concentrated companies. They were a bit more forward-thinking in terms of providing the benefit, right? As time progressed, now we have employers, you know, all over the country, all over the Midwest, you know, the South, you name it, across industries. We started in two industries, five clients in two industries in 2016. We're now, you know, 379 large self-insured clients over, in over 40 industries, right? That's the part that's sort of ubiquitous in terms of people realizing it's a human benefit. It's not anything related to any one industry, or another.
It's specific relative to the need of the couple, or the LGBTQ+ population overall in terms of them building their family. After that, the utilization itself continues to inch up sort of across the board, regardless of what company you're part of, what industry you're part of, et cetera. You know, we look at our cohorts as sales year cohorts, right? So you're across industries each sales year, and we look at them independently, and every one of them over the years continues to, you know, inch up, you know, over time. They're not dramatic increases. You know, they're basis point increases, you know, like that on average, basis point or two.
The reality is that when you're, you know, 0.48% female utilization, you know, in Q1, for example, those one or two basis points matter.
I guess along those lines, one of the other big questions I know is coming across everyone is the dynamics of macro conditions, whether going through recessions and it looks like a recession. I'm not smart enough to figure that out. What are your clients telling you in terms of what they expect from a utilization perspective first? Well, I wanna get to the selling season and the employee base after. Are they expecting a change in utilization because this is still in terms of fertility services, having a baby, on the one hand, it's something that even with great coverage, it's still, it's a very expensive journey in general. And obviously, once you have a baby, it's very expensive. The, the flip side to that is, to your point, they'll be yet the harder scientific it becomes. I guess is it?
maybe it's too early, but what are your clients telling you right now about what they expect to have their utilization be for their members in event that macro conditions get worse?
We're not hearing an expectation of a decline in utilization because people are worried about the economy, because people are worried about inflation, et cetera. It's sort of what Mark was alluding to a second ago. People realize there's a reality to the window they have, and it's small. Of when they have the ability to build their family if they're in the age where they're gonna use assisted reproductive technologies. Because each year, the reason why the CDC reports outcomes by age band by year, 35-year-old outcome, 36-year-old outcomes, et cetera, because there is reality to each year, your odds go down even with the help of assisted reproductive technology.
When you're a couple and you realize that you're infertile and you need help, the last thing you do is worry about, you know, the current, you know, price of milk, for lack of a better term, and forego building your family. It's not what's happening. That's why we've been seeing an increase in utilization, again, incrementally and small, but a steady increase in utilization since the middle of last year. The reality is that despite whatever concerns maybe somebody had in the H1 of the year because there was an inflation or economy or started even a little earlier than that, they're not waiting, right? I think that's sort of what's happening. There's nobody saying to us, they're expecting it to go down. Here's a nice thing, though, about utilization.
We have a lot of new clients. We predict for our clients what we expect utilization is gonna be when they go live, right? We're usually pretty good at doing that, but every once in a while, you, as you may imagine, we're not perfect at it, right? There are clients that are large clients that are newly started who have better than expected utilization. You would think they would be upset about it 'cause it's gonna cost them more than what we projected. They're ecstatic, right? They're ecstatic that they rolled out a benefit and that the need was in fact bigger than what they thought, and employee retention is real and attracting talent is real. At the end of the day, they're not upset about it, they're happy about it.
A lot of them are large health systems that are ecstatic because their utilization is in fact over-indexing with nurses, and they're struggling with the nursing population, retaining nurses. It's another sort of data point that they're actually ecstatic about. It's a, it's a funny thing where they're not looking for, even given this economy and any concerns they might have overall in terms of, you know, the macroeconomic situation, they're not looking for the savings in the form of less utilization. They decided to roll out this benefit because it was a real need, and they're happy when they see the utilization.
I might come back to that dynamic of the penetration within the base, but you talked about health systems, I wanna make sure I hit on this. Seems like the last two selling seasons, health system market has been one that you've alluded to as having great strength, and there's been a couple notable statewide systems, like, I don't know if you Children's Hospitals that obviously the Children's Hospital Association partnership.
Yep.
Maybe fill us in a bit about why you think you hit a breaking point on health systems, and then building in what that importance is of that Children's Hospital partnership, hunting license, whatever term you're gonna use, that really put a nice stamp of approval on your opportunity to grow.
I'll hit on it in a second. There's a really important point about every industry. All of them sort of think about things differently relative to, you know, being innovative in terms of benefits, right? Some industries, you know, are followers relative to other industries that are more leaders, right? Tech, as I said before, has been a leader in innovative benefits. This is no different. Was one of the first in terms of rolling this benefit out. After that, right, in every industry for us, you know, whether it's healthcare, whether it's health systems, whether it's Tech, whether it's oil and gas, whether it's you name it, once you get the first, then others follow fast. We've been highlighting health systems because, you know, think about it.
They were slower to adopt. They've now been adopting, but they're health systems. They're in healthcare, right? You would think it's something that they would have already rolled out to their employees. They're catching up, which is great, but it's just an example of how many more employers, but even employers in healthcare are realizing that this is a very real medical necessity, not a nice-to-have, and are now covering it, and the pace of it is growing. We presented at another conference earlier in the year and showed three or four different industries and show how once you penetrate it in that first year, each year after that, you continue to grow pretty quickly in those industries. That's why our overall growth has been what it's been.
Last year, in our 2022 selling season, we sold in 30 of the 40 industries that we served, right? Healthcare is no different. It's just something we've been highlighting. You know, for the reasons that I said.
There's also still the competition for employees as well. That's still a real thing even across industries. You know, health systems in particular, you know, have been impacted by that, by, you know, nurses leaving for other professions. That's also driven the increase in benefits and then the, you know, interest in adding things like family building and particularly attracting and retaining, importantly, those populations.
The nice thing about the health systems and in particular the Children's Hospital Association endorsement is they're sophisticated buyers, as you might imagine, a little bit more sophisticated than most others within healthcare. Their vetting and their endorsement, and their adopting the benefit, adopting Progyny, you know, means a lot relative to, you know, being as informed of the buyers you can get.
Yeah. I mean, the Children's Hospital Association to me seems like such a logical partnership. If anything, they've seen what the work that you do can lead to from a success perspective more so than like any other customer you'll touch. With that as the backdrop, what are you expecting out of this? I guess, how do you think about where you're judging your own success on working with these other hospitals beyond the few that you started with?
It's really sort of no different than what we expect across the other 40 industries that we have. We expect the flywheel effect of other companies realizing, again, this is a medical necessity, and we expect the partnership to help us, you know, drive adoption faster within their employer consortium. Is the gist of it, but the details are what matter. Having them endorse you and having their partner hospitals ask them sort of what they think and then sort of who they recommend is a big deal.
We talk about vetting. I mean, it really were, you know, a fairly deep process, and I think the member organizations will know that. Like deep InfoSec, you know, security analysis. Like they did the work as if they were, you know, the large employer buying the service. Putting their name next to us is sort of that endorsement. Again, the groups know that. They know that, you know, a lot has been done to vet the company.
Hopefully, it helps shorten the sales cycle.
Right.
Speaking of endorsements, I mean, it's been a big year of partnerships, but Evernorth. I remember, I wanna say, we were doing a virtual conference when they announced their previous iteration of fertility back a few years ago, and clearly now they're going another direction. Maybe just give us a little sense of how this is gonna work? You know, obviously, huge stamp of approval, but what will that interplay be in terms of the work you're doing with Evernorth with Cigna parent and how essentially it creates the funnel for lead generation?
Sure. Michael led it, so I'll let Michael.
Yeah, sure. Yeah, we're super excited about the partnership, and, you know, as you said, it's something that has, you know, developed over time. You know, partnerships with companies like Evernorth certainly don't happen quickly. You know, they were certainly familiar with us through our use of Freedom Fertility, which is, you know, which we use for our distribution services. You know, through that partnership, we got to know each other. They got to know us a little bit better from an outcomes perspective, a go-to-market perspective, and an impact on client perspective and retention of those clients.
As they have evolved in their, you know, in their mission and what, you know, and what and how Evernorth goes to market, they saw an opportunity to bring us in underneath their FamilyPath brand, and Progyny as the preferred provider within that brand. You know, that does a few things for us. Obviously, from a, from a channel partner, reseller perspective, you know, we have, you know, essentially access to, for lack of a better term, and resell opportunity into the full Evernorth, you know, suite of clients, and that includes, you know, ESI and Accredo and all of their and all of their branded, you know, business units. You know, that's number one.
Number two is, as Mark was saying earlier with the, you know, Children's Hospital, it's a, it's a credibility stamp of approval. It's a recognition of all the things that we've been talking about, our clinical design, our outcomes, our ability to control and influence costs, and certainly our impact on member experience. Third is from an administrative ease perspective, once we have a client that is interested, you know, there is. You know, they were able to run the contracting, you know, through their larger, through their larger contract. The administrative process for fee payments and things like that are all already established, and it creates a much easier path to implementation and then further deployment for the employer. You know, it's early in that. It's early in the partnership.
You know, we'd love to get to a point with them where sort of, you know, their, you know, clients are coming to us, you know, via their distribution. Certainly, you know, the partnership is early, and we still expect to, you know, do a majority of the selling. As the relationship matures, we'll sort of see how that evens out or even potentially flips.
Let me ask a question that I apologize in advance if it's a dumb one, but I'm gonna try to go for it anyways? Will there be any difference in terms of economics to Progyny from a customer that comes in through the Evernorth channel versus a customer that you're selling directly on a call it three-year cohort basis?
No.
Okay.
No. The only difference is there's participation for Evernorth, as you might imagine, for some of the efforts. Part of it is also that's really important is, you know, we have a relationship, I think Michael sort of mentioned it, they're part of our dispensing network on the pharmacy side. They get to participate more as they source more on that side. The economics, for us, the economics are not gonna change. For them, the economics do get better as they get a bigger share of sort of what we do.
Got it. Hopefully, it wasn't too dumb a question.
No.
No.
No, it was good.
I can ask plenty of dumb ones here.
Yeah.
Let's go back to this year's selling season. Fully realizing that on a typical year, still in the early stages, that you're in discussions more than signing. I guess, what's the feedback you're getting, especially, I think about the last few years where seems like you're adding on more services. You know, obviously pharmacy cross-sells been great. Maybe it's anecdotal, but it seems like you're selling more Smart Cycles in the average contract. What are you seeing this year in terms of what the inbound requests that prospects want from you look like?
Same as other years, slightly better maybe overall in terms of what you're covering. You know, take rate over the years has really gotten now almost 100%. On pharmacy, for example, last year was 97%. That's no different so far this year. Again, it's early. Take rate on fertility preservation, again, that's one of the options that you do within your benefit design. Take rate on number of cycles, all of that's really positive. No indication from existing clients that anyone's, you know, even thinking about cutting anything back. We already have, you know, good upsell activity relative to existing clients, you know, considering we're early in the selling season.
I think probably the most important thing we're hearing From the benefit concerns is despite the macroeconomic environment and despite they are being cost conscious relative to their overall benefit package, and they are looking at areas to cut back and areas like wellness, et cetera, digital tools, you know, that kind of stuff. You know, family building is, you know, and I'll use their quote, "Family building is in the ad column." It is something that companies are still looking at in terms of adding to their overall benefit package, even if they look to cut in other areas. I think that's probably, you know, the most insightful comment that we've gotten that's supported by the reality that our overall active pipeline is favorable to where it was last year this time.
Our not now active pipeline is favorable again also. All of those indicators are there for us in the detailed activity in what the sales force is working. The macro comments are consistent in terms of family building still being a priority that many companies are looking at, whether they have the benefit now and wanna enhance it or do it better, or whether they are completely greenfield and don't have it at all. All of that activity remains positive. Right. I don't know, Michael, you wanna add anything?
Yeah. No, I mean, I think you said it all well.
I guess along those lines, you know, the not now comment is one that's always stuck in my head, just 'cause very simple terms. As you come into a given year, what is the breakdown between what's the kind of actively attempted to sell and pushed up till later, what I consider not now versus the newer prospects that you may have either talked to once or just are completely new to your discussion?
Yeah. I'll give you sort of a easy data point. 25% of new logos we added last year were not nows.
Okay.
Right? It's not an instant. We talk about it. We don't just talk about it 'cause it's fun to talk about, it's real, right? The really interesting thing about it is many of them don't just come from the just prior year selling season and didn't buy. Many of them come from two and three years ago. Companies, you know, looking at things, especially larger companies, looking at things and evaluate them for over a longer period of time or looking for the right moment within their own other priorities overall as to when they're gonna add it. The reason why we continue to identify the not nows is because they truly are not nows. They're not losses to somebody else. They're just, we looked at the benefit.
This isn't the year we're gonna pull the trigger, but we didn't walk away with a bad taste in our mouth. That's why... The not nows for us, like the overall logo ads that are growing, grow every year in terms of their contribution to the sales year. That's probably the best way I could frame sort of the importance of not nows.
No, it's a very straightforward, simple term to use that makes sense given that this is typically a newer benefit versus if somebody's going to replace a medical carrier.
Yes.
They've already done. You're not waiting.
That's right. Yeah, I mean, that's the part that, you know. Again, we win from both sides. Certainly those that have the benefit and then move over to Progyny. You know, roughly 50% of the time it's a brand new benefit add and there's no comparison. It is a, you know, a budgetary consideration. It is a, you know, a prioritization consideration. Sometimes it just takes a cycle or two to come to that decision.
Before we run out of time, it's, I guess, kind of big picture question. You know, this market has been evolving for a number of years, and especially since you've been public. You, we've talked in the past in conversations like this about the difference between competition versus substitution. The idea of somebody that's putting a direct fertility benefit head to head versus something that's something holistically tied to fertility and family building. As you go into the next few years of the Progyny life cycle, how do you see that evolution of the competitive/substitutive landscape going? I always use those terms together 'cause I think they do kind of go hand in hand. Where do you see Progyny's role in evolving who are your competitors versus who are your substitutes?
I think the Evernorth partnership is probably a good start to what you will hope to see, which is more partnerships with managed care. You know, them, you know, doing it with us because we have figured out a very unique way of doing it and our head start is pretty significant in the amount of investment that we make each year. Now we're eight year in market is so significant that the moat is huge, you know, for anybody who wants to sort of do it the way we do it. We have a proven model. Been proven, you know, eight years in a row now in terms of favorable clinical outcomes. We're truly delivering value-based care in our space. All that's important. It's starting to be recognized.
We're starting to have dialogue with others. I think that'll continue. You know, if you ask me, that's probably the biggest way that we'll help to sort of influence and shape what happens over the years in terms of fertility benefits being offered and managed towards self-insured employers. I don't really see as far as the venture backed competitors, them doing anything really different. I see, you know, at best, you know, an attempt at better marketing. In terms of actual sort of change in solutions and approach, I don't really see it. I can't predict sort of what they're thinking beyond, you know, what we see, but I don't see much change in terms of what they're doing.
I think as important as the sort of, you know, competitive space evolution, I think the recognition and continued advancement of coverage for family building services and access to those services and benefits is continuing to expand. There's a continued recognition. There's a continued, there's a continued emphasis by the employee population that it's a recognized condition, and it's something that, you know, should and deserves the same level of coverage as, you know, the other conditions in that space that, you know, we all sort of get, you know, naturally and normally through our benefit coverage with our employers. I think that's a really exciting opportunity.
Well, I see the red light. I got through half my questions. I'm proud of myself for that. Pete, Mark, Michael, thank you so much for joining us. Really nice to meet you.
Thanks for having us.
Thanks for having us.
Always good to see you.
Appreciate it. Yeah.
Thanks, everyone.