Q1 2021 Progyny Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the progeny of incorporated first quarter 2021 earnings call.
At this time, all participants have been placed on a listen only mode on 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 of James Hart, Sir the floor is yours.
Thank you Catherine and good afternoon, everyone welcome to our first quarter conference call with me today are David Schlanger, CEO of progeny, Pete enough Geek, President and COO and Mark Livingston and CFO, we will begin with some prepared remarks before we open the <unk>.
Two 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 second quarter.
Of 2021, the impact of COVID-19 on our business clients member activity and industry operations, our ability to acquire new clients and retain existing clients our market opportunity size in expectation of long term growth.
Our corporate governance plans business performance industry outlook financial outlook strategy future investment plans and objectives and other non historical statements. As further described in our press release that was issued this afternoon before looking statements are subject to certain risks uncertainties and assumptions, including those related to <unk> growth market opportunities and general economic and business conditions.
These forward looking statements largely on our current expectations 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 descriptor.
Some 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-K during the call. We will also refer to non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin reconciliations with the.
The comparable GAAP measures are also available on the press release, which is available at investors. The progeny Dot com I will now like to turn the call over to David.
Thank you Jamie and thank you everyone for joining US today, we're pleased to report a solid start to the year reflect reflecting record quarterly revenue strong utilization and the continued expansion of our margins.
Mark will walk you through the details of the results in a few moments, but here are a few of the highlights revenue grew 51% over the first quarter of last year to $122 $1 million average members in the first quarter grew nearly 30% from the year ago period to $2 7 million, reflecting not only the addition of our newest clients, but also the.
The 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 6600, which is the most cycles we've ever managed in the quarter.
Female utilization ticked up on a sequential basis from the fourth quarter of 2020% to 0.47% demonstrating that facility continues to be a priority for those unique treatment in order to start to build their families even against the backdrop of the ongoing pandemic and lastly, adjusted EBITDA in the first quarter of more than doubled to <unk>.
$17 3 million and our margins increased over the first quarter last year.
In addition to the strong results during the quarter. We also successfully ensured that the onboarding of the 44, new clients, who went live with their product any benefit when seamlessly from an operations perspective, the first quarter will always be critically important to us because unlike businesses that grow ratably throughout the year. The substantial majority of our new clients begin their per.
With us on January one as a result, we need to prepare in advance for a step function increase overnight in our business volumes, which demands that we have the necessary processes and personnel in place to ensure the smoothed smooth launch of each client as.
As we have done in the past this year, we have successfully completed our newest implementations and have been managing the increased volumes of member activity. While also maintaining a focus on the service levels for all of our clients, both new and existing each day every each year one of our strategic priorities is to ensure that we not only maintained the industry leading search.
Of this levels of our clients have come to expect from US, but then we identify ways of improving that experience for both our clients on their employees each year.
We believe it is because of this focus that we've been able to maintain very strong levels of client retention since our inception.
One of the ways, we foster strong relationship with the at the client level and reinforce our value proposition is through extensive quarterly reviews. We provide comprehensive reports containing hundreds of data points detailing the experiences and outcomes of our clients members of habit project. In addition, we also conduct an extensive annual review with each client to.
Both deepen our understanding of the specific issues that are important to them and to further reinforce the unique benefits of our solution.
The these reviews typically happened during the first quarter and one of the recurring themes. We've heard from clients. So far. This year is the project. He 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-19 outbreak and remote work environment.
The result of this feedback is also demonstrated in our NPS score of this quarter, which increased to 81 for fertility services, which is the highest its ever been this exceptional result indicates that members continue to rate progeny at or near the highest possible scores, which we believe reflects both the quality of the service we are providing as well as the outcomes were.
Our achievements.
I'll spend a few moments discussing each of these starting with the quality of our service one of the core components of our services the unprecedented level of patient education and support the we provide to help members navigate through the complexities of their fertility journey by now many of you are familiar with the role of RPC as had been providing the service, but you may be less familiar with the <unk>.
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 the recently, we've held women webinars examining issues of infertility and maternal health in the black community fertility preservation for cancer patients on what fertility patients need to know with respect.
The COVID-19 vaccine.
We are also mindful that our members are very diverse and of many different perspectives as just one illustration, we enhanced our content geared to the male partner in the family building journey to address the issues of male infertility. We've created similarly in depth of content on managing mental health during the utility journey and on explaining the pathways to parenthood that are available for sale.
Sex couples of single parents by choice.
Turning now to our outcomes the CDC and the society for assisted reproductive technology recently released their latest fertility data, which <unk> reaffirms the progeny outcomes continue to significantly outperform the national averages to highlight just a few of the takeaways are pregnancy rate is now 16% better than the Nash.
Total 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 of year ago is now 25% better in practical terms are higher live birth rate translates to meaningful financial savings because of client needs to fund significantly fewer.
Rounds of IVF treatment with <unk> than they would otherwise have otherwise would in order to help their employees achieved their family building goals.
An important point to note is the project is live birth rate has improved 14% since 2016, while the national average has remained flat. 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 two 8% as close to the natural twinning rate is now 72% better than the national average multiple gestation or high risk pregnancies and the largest cause of preterm birth. So this outcome translates to significant downstream medical.
Cost savings for profit clients, because they avoid the substantial maternity of NICU costs as well as the chronic care costs that are associated with low birth weight babies 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 first quarter results and then provide our expectations for the second quarter and the full year and the quarter revenue grew 51% over the first quarter last year to $122 1 million. This growth was primarily due to a higher number of clients in covered lives.
Though as we previously reported revenue in the prior year period was negatively impacted by lower utilization when fertility clinics temporary temporarily closed at the onset of the COVID-19 pandemic.
Breaking down the components of the top line net revenue increased 50% over the first quarter last year to $88 9 million pharmacy revenue increased 54% in the quarter to $33 3 million. While we continue to be very pleased with the progress of pharmacy adoption. Since we launched the service in 2018 there of.
Remains of future upsell opportunity to more of a more than a quarter of the client base.
As of the end of the quarter, we had 179 clients representing an average of $2 7 million covered lives during the quarter. This compared to a 132 clients and an average of $2 1 million covered lives in the first quarter last year, reflecting growth of approximately 30% in covered lives over the past year.
<unk> into account the clients, who launched their benefit following the close of the quarter. We now have 180 clients each with at least of 1000 covered lives.
Turning now to our utilization metrics. There were 6558 art cycles performed during the first quarter. This represents our highest ever quarterly total of cycles and reflects a 48% increase as compared to the first quarter of last year.
The female utilization rate this quarter, which is what really drives our financial results was <unk>, 47% this compared to point or 1% utilization from a year ago again utilization on 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 <unk> 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 of year and the demographic mix of the newest clients.
Turning now to our margins gross profit increased 74% from the first quarter last year to $28 9 million yielding of 23, 7% gross margin an increase of 320 basis points from the year ago period the.
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 first quarter of 2020 were negatively impacted by our decision to keep all of our employees in place, including our care management staff. Despite the pause on treatments at that time due to the on center of the pandemic.
Turning now to our operating expenses.
And marketing expense was three three percentage of revenue in the first quarter, reflecting a 70 basis point improvement from the year ago period, we continue to see improving operating leverage in our sales and marketing functions as we scale and benefit from our near 100% client retention rate.
G&A costs were 10, 7% of revenue this quarter as compared to 12, 2% in the year ago period, reflecting the inherent nature of expanding margins on G&A as we grow our revenues.
With our strong topline performance and the margin improvements across the business adjusted EBITDA more than doubled this quarter from $6 7 million a year ago to $17 3 million this quarter, our adjusted EBITDA margin of 14, 1%. This quarter reflected of 580 basis point expansion from the year ago period.
Yeah.
Adjusted EBITDA margin on incremental revenue this quarter was 25, 7%.
Reflecting the favorable comparison to the year ago period, when margins were negatively affected by the temporary pause on treatments.
Net income was $15 2 million in the quarter of <unk> 15 per share this compared to net income of $3 6 million or <unk> <unk> per share in the year ago period on.
The improved net income and EPS in the period reflects the favorable results I, just described as well as the $6 $5 million 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 <unk> 5 million, which compares to $12 1 million in the year ago period, which as previously disclosed included $6 7 million of favorable timing items. It's also important to note that in periods of significant sequential revenue growth you would ordinarily see of negative <unk>.
With the net income of between six $5 million and eight 8 million are between six and nine earnings per share on the base of basis of approximately 101 million fully diluted shares.
For the full year, we continue to expect revenue of $520 million to 540 million reflecting of growth of between 51 and 57%.
Given our strong start to the year, we are raising our profitability guidance for 2021.
For adjusted EBITDA, We now expect between 70 to 75 million and for net income of between 34, three to $42 2 million of between 33 and 41 earnings per se.
<unk> earnings per share on the basis of approximately 103 million fully diluted shares.
And both of the quarter and the year. Our net income range is do not reflect any estimate for discrete income tax items, including the income tax impact related to equity compensation activity.
At the mid points of this guidance, we're 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 the pizza.
Thanks, Mark good afternoon, everybody.
I'll begin with some qualitative commentary about ourselves in season as it relates to generating new business.
When we spoke of the last quarter, even though the selling season hadn't yet begun the preliminary discussions we've had with Bennett the consultants and prospects revealed their hopes of the 2021 would be of more normal year in terms of their ability to evaluate new benefits and make changes to their health plans.
One 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 the companies are increasingly able to think about what the world looks like for them and their employees post COVID-19 a year ago. Many of these companies were distracted as they work through the COVID-19 mitigation plants. These distractions ease of.
Companies should be in a better position to make decisions about the benefits than they were at this time last year at.
At this point in the season, we're actively selling both pitching business the new prospect as well as we engaging with the deferred accounts, who had given us the not now response and the previous out of the seasons are sales team is building pipeline the responding RFP opportunities engaging directly with the accounts and feel the introductions made by the benefit consultants on our behalf the potential customers.
The early activity we've seen through these combined channel. So far has been very positive and pipeline editions in early sales commitments are favorable prior year and in line with our internal expectations at this point in the sales year as a reminder of the goal the cell sales season, each year is to grow the absolute number of of new clients from cover lives each year.
Obviously last year's season became an anomaly because of out COVID-19 affect the prospects on our pipeline. So we're looking at 2019 is the baseline from which were benchmarking our sales growth and we believed from of new sales perspective that we're on track to return to the historic trajectory, we have been on prior to COVID-19.
As usual, we look forward to sharing more insight with you on our second quarter earnings call, but we continue to expect of the majority of of client decisions as in prior years will be made at the end of the summer early fall for implementations and 2022.
And the other potentially important development of the selling season is the launch of our newest channel during the quarter project of instructed to be the fertility and family building benefits offering within the Cvs is health point solutions management program the arm.
Familiar with this program, it's the full service offerings from Cvs health that helps plan sponsors, including the word self insured employers in our target market to simplify contracting secure of the lowest price and monitor the ongoing performance for a variety of points solutions and healthcare.
Some of the other solutions in this program address hard health mental health weight management stress management and musculoskeletal conditions.
We're incredibly proud of the prizes and the has been selected to be the facility and family building benefit solution on this program as it recognizes that are offering meet Cvs helps high standards for safety quality of member of experience.
And he provided for the joined the program has to undergo of thorough clinical security in business valuation process and find the choose to add one of the available solutions then benefit from the ongoing monitoring and offset and oversight to ensure performance.
In short this is an important validation of both the quality of our service and the superior.
Superiority of our outcomes, which day, we discussed earlier on.
Our inclusion in the program makes progeny available the Cvs Caremark's commercial self on the clients some of whom we had already been pursuing and significantly simplifies the sales process for these accounts.
We are enthusiastic about the potential for this relationship and we look forward to partnering with Cvs health points solutions management to bring our reading fatuity benefits losing to their clients.
It is important to note that the launch took place after the 21 2021 selling season had already begun so while we can see an incremental impact of our 2021 sales season, it's too soon to know whether we'll begin to see more of the benefit of future selling seasons of this one.
The conclude we're very pleased with our results this quarter, which demonstrate that we have continued to execute against all of our strategic initiatives. In addition, we continue to believe that progeny is in the strongest ever competitive position that our market opportunity remains largely on penetrated and that all of the macro of factors that have contributed to our growth remain intact.
With that operator, we'd like to open up the coffee for questions.
Certainly ladies and gentlemen, the floor is now open for questions.
You have any questions or comments. Please press star one on your phone at this time.
All kinds of your question. Please pick up your handset of listening on speaker phone to provide options sound colony. Please.
Please hold I'm on the label for question.
Your first question is coming from Stephanie Davis as to the.
Larry.
Your line of slides.
Okay. Thank you for taking my question congrats on the quota instead.
Instead of the queue. Thank you.
I think anyone on the call would be hard pressed the day they have a lot of these.
<unk> D. The initiative that day.
With that in mind Huggins has impact of messaging on maybe the the southwest education process of the outcome.
So.
Good question, Stephanie So we progeny kind of since the the beginnings of the company have been very focused on on equity.
As it relates to fertility benefits of making sure of the our customers understood that our benefit is designed to.
Work for all employee populations and not just kind of equity across employee population to make sure of the there was equity also with respect to the utilization of the benefits.
By having a cycle based benefit versus the dollar base benefit we can make sure that everybody gets the same number of chances to.
To build their family regardless of how complex the cases or where they live in the country gives.
Given the pricing did very store dramatically by region, but we've really kind of of we've continued to evolve how we help companies from of that diversity equity and inclusion perspective.
One of the things that's really come out in the past year is that in the.
That people are talking about that.
There are historically had been very significant.
Recently raised recently raised.
Race race differences as it relates to health care and health care outcomes.
And that that also applies to fertility so with fertility we know that.
People on the Black community have the higher incidence of of infertility, the significantly higher incidence of infertility, but also they have of lower incidence of seeking 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 available to everyone in that spans employee populations.
We're making sure that when we support members.
That we're supporting members and of culturally competent and sensitive way. So we're training we've trained our staff and we're working on ways to help addressed of those racial disparities.
As it relates to health access to health care and health care outcomes. So.
And obviously this is the conversation that we have with our customers and prospective customers. We know these initiatives are important to them and and we'll try and again, we're trying to help them with their initiatives and.
And as I, just said, we're continuing to evolve as the.
As the requirements from four dei continue to evolve with us so.
Be beyond kind of how we've trained the staff. We're also doing things like creating content podcasts webinars on live events that deal with some of these issues. So that our members can be educated about these issues and understand how.
How they can actually help help themselves address some of the.
Some of the disparity of some of the disparities of of existed, but clearly the trend and focus on dei in corporate America and as it relates to benefits is an important tailwind of the business and again, so one that we very comfortably fit into.
And just the follow up on that one for the sales process I imagine to also probably a little bit different mental state feed on the street model. Okay. So from channels. Then if you could talk to you about the DNI and inclusion initiated have you explored any of the channels or is that something that's going to be kind of of.
<unk> the opportunity no no we certainly.
Again, it's been it's been part of the DNA of the company.
We are comfortable having conversations with chief diversity officers for instance on a corporate clients.
So certainly we're making sure that our clients understand how adopting of benefit like the progeny benefit can help them further of their own initiatives. So it's really been part of who we have been from the very beginning but.
As of.
As awareness around other issues continues to surface, we continue to evolve and make sure. We are addressing those issues also.
Super helpful. Thank you guys.
Thank you.
Your next question is coming from and Samuel J P. Morgan.
Hi.
Great. Thank you I was hoping you could provide a little bit more detail on the margin improvement really nice incremental margins. This corner 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.
<unk>.
No problem so so.
Versus.
The original guidance that we put out in early March we were in the process around the entire supply chain around on our pharmacy program and we had rfps out there and.
And so that process didn't culminate until really the end of the quarter beginning of part of it the end of the the end of the third quarter part of the beginning of the fourth quarter and the long short of it is is it ended up being favorable to what we had insight into earlier first quarter second quarter, Yes, sorry, first quarter second quarter apologies.
And was favorable to what we had visibility into when we put out our our guidance.
So so so that's where the improvement came from and then and then to the extent that.
That that we're able to continue that type of improvement yeah. It could raise sort of the long term.
<unk> of where we might get to ultimately but.
As we haven't really sort of updated that long term view, except for when we were on her on a road show going public what we'd rather do is continue to point out the leverage an expansion in margins that we're able to achieve and continue to focus on the overall business and what we can do as opposed to the sort of just setting targets.
But it certainly indication that that could be the case.
That's really great and then you know maybe just on utilization how do we think about what happened to the cycle that maybe it didn't happen during cold that you know you're you're back baseline now but is there any potential for those lost cycles to come back.
There always has the potential range.
The question is and the challenge is always been for us.
How do we quantify how many lost cycles. They are aware of how many of them have already come back how many of them are coming back slowly.
Cetera, and so the difficulty is.
We don't know exactly because we only know those folks that we talked to not the not the members that we don't talk to that that are pausing on their own and not calling us and so and so it's really difficult to get visibility into.
How much.
There may still be.
Members that are that are sitting on the sidelines. If you will either to add a need for the moment and how many more of that may come back as vaccines rollout et cetera. So I wish I could quantify that if I could I would take it into the numbers, but but.
But certainly.
Possible I, just don't know exactly how and when the quantify that.
That makes sense thanks, guys.
Your next question is coming from Ralph Jacobi from city on your line is fine.
Great. Thank you and after noon.
I guess, obviously from the top one first quarter guidance from the second one of those so it looks like the.
He did keep topline guidance on cheese interest you.
<unk> anything to sort of call out to reconcile uhm is I would think too cute could of been sort of the clause quarter of you will on on hesitancy due to the vaccinations, but that doesn't seem to be the case, so anything else on the secondhand that sort of the whole thing.
Brings back a little bit.
No nothing.
Nothing at all to read into relative to our queue to guidance and our full year guidance versus R. Q1 results were.
We're not holding back of you will we are projecting based on normal utilization patterns that we see and how they give us indications of what we made expect in the back half of the year. Historically, we there is.
The first half second half sort of seasonality, if you will relative to how when.
When the new playing year turns for both new and existing clients how members utilize the benefit.
But other than that really really nothing I wouldn't call. It holding back I would call. It. This is the best visibility that we have on the best guidance, we can put out there relative to that visibility.
Alright, and then just from the the pharmacy contracts, maybe just remind me how the economics flow on that are expended then is it just the mark up is there any pass through the.
Like the.
There is what is the pass through essentially to your customers repeat what you keep and then you also mentioned contact the news with your providers is that just how you will update was there sort of of greater portion of renewal given everything that happened last year, certainly didn't seem like the pressure is there but.
Maybe anything in your discussions on when the beer is or could be more on right and they were looking for.
Well, we don't we don't quantify how much we do we don't pass back to our clients, but we do adjust prices when.
When we have 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 and it's also of what we're doing this year and so.
Whenever we have an opportunity to to do the right thing by our clients, we do do that but at the same time, we do have of focus on sort of growing the the business and growing margin sort of overall incrementally overtime.
Most of the provider side, just recurring provider negotiation.
The.
The providers all have different and that's why we sort of call the normal recurring negotiations of providers.
I'll have different contractual start and end periods. The generally two year agreements and so they all sort of every quarter cycling.
And yet renegotiated he said there in the network the thing that changes in the could impact any period is is the volume of of providers that may have a higher volume of our overall members going to them and therefore could I have a bigger impact of any one period et cetera in terms of what gets negotiated within the quarter, but for the most part of normal recurring.
Contract and rate discussions.
Generally of data driven discussion with our providers.
That we've been doing over the years.
Okay.
It's helpful. Thank you.
Thanks Ralph.
That concludes the.
Q&A portion for today's call I'd now like to turn on the floor back over the James Heart.
Thank you Catherine and thank you everyone from Georgia. This afternoon. Please if you have any follow up questions and 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 the time and have a wonderful day. Thank you for your participation.