Q4 2021 Progyny Inc Earnings Call
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[music].
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Good afternoon, ladies and gentlemen, and welcome to the progeny, Inc. Fourth quarter 2021 earnings call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
My pleasure to turn the floor over to your host James Hart, Sir the floor is yours.
Thank you John and good afternoon, everyone welcome to our fourth quarter Conference call with me today are Pete in S. E CEO progeny, Michael <unk>, our president and Mark Livingston CFO , we will begin with some prepared remarks before we open the call for your 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 first quarter and full year of 2022, including our expected utilization rates and mix the impact of COVID-19, including variance on our business clients member activity and industry operations are.
<unk> to acquire new clients and retain and upsell existing clients our market opportunity size and expectation of long term growth our plans for the expansion of our business, including expansion into other markets and other services offered our business performance industry outlook strategy future investment 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 those related to project these growth market opportunities and general economic and business conditions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe that belief 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.
<unk> with the SEC, including in the section entitled Risk factors in our most recent 10-Q.
During the call. We will also refer to non-GAAP financial measures such as adjusted EBITDA adjusted EBITDA margin gross margin, excluding stock based compensation and operating expenses, excluding stock based compensation reconciliations with most comparable GAAP measures are also available in the press release, which is available at investors that progeny dot com I would now like to turn the call over.
Got it.
Thanks, Jamie and thanks, everyone for joining us today.
Mark will walk you through the details of Q4 and the full year shortly but before he does I'll give you some high level thoughts.
2021 company grew to record levels for both revenue, which grew 45% over 2020 and attained its highest levels of profitability with 13, 5% adjusted EBITDA margins. We also maintained our nearly 100% retention rate among our existing clients driven by our industry, leading clinical outcomes, which we achieved for the six year.
Oh in Iraq, as well as our exceptional member and client satisfaction, which is evident in our best ever NPS score of plus 81.
Top of this we had our most successful selling season ever which is the most important drivers of our long term growth by adding a record 85, new clients and $1 2 million new covered lives. We accomplished all of this despite the unexpected COVID-19 related waves that marginally disrupted member activity from time to time, including the most recent disruption due.
<unk> at the end of the fourth quarter.
When we issued our guidance to you in early November we've been experiencing increased utilization at September October and November all had strong sequential growth month over month, when the omicron variant of COVID-19 emerged in early December and spread across the country faster than any other banking overall member activities slowed sharply enough today.
Had an impact on our results in the quarter that was beyond our ability to predict.
To put that in perspective, we typically see in our guidance for Q4 contemplates a.
A decline in member utilization from November to December due to the holidays in routine clinical measures.
However, the decline we actually experienced in December due to the omicron was nearly twice what we were anticipating resulting in a negative impact of revenue of approximately $9 million for the quarter.
This all Mclaughlin related impact of member activity continued into January as a value and continue to spread across the country and infection levels hit their peak. However, as the awareness grew that the variant was generally producing more mild illness. Our members mindset with respect to pursuing treatment improved based on the visibility. We currently have member activity for.
February and March as well as the limited visibility we have into April as rapidly recovered to normal levels and the omicron related impact on member utilization appears to be behind us.
One of the most important themes emerging from the last few years is that the substantial majority of fertility patients recognize the time sensitive nature of their treatment and have continued to be highly resilient in the pursuit of care even against the backdrop of the pandemic. This can be seen through the consistency in our quarterly utilization rates over the past few years.
<unk> and.
Additionally, unlike other areas of health care that may be significantly strained our altogether disrupted following a surge in COVID-19 cases, the vast majority of fertility clinics aren't located in hospital settings.
Clinics have had the resources they need to remain open and available to care for patients even as Covid cases spike in parts of the country.
And whenever Covid is more acutely impacted our member activity, whether it's been due to an increase in cases because of the government recommendations related to shutdowns of reopening those effects have been both short lasting and have only affected activity for a relatively small proportion of members overall.
Although we can't control global pandemic and its marginal impact on utilization the important takeaways that we are performing at the highest levels in the areas that we do impact.
This includes the member experience to their benefit offering our industry, leading clinical outcomes that are critical to that member experience are high levels of client satisfaction, which are due to the value of our favorable outcomes generate our client upsells and renewals, which further demonstrate client satisfaction and our record levels of new business won.
With the near 100% client retention that I previously mentioned today, we have more than 265 clients under commitment, reflecting 4 million covered lives, which are up more than 50% from a year ago.
This reflects an approximately 3% share of the large self insured employers in our target market, which doesn't yet include other types of employers such as fully insured companies school systems unions and governmental entities in agencies.
Now, let's turn it over to current sales momentum.
While it's too soon to provide you with any detailed quantitative comments since we're in the very early stages of our 2022 selling season, our sales momentum from 2021 is continuing into 2022 we're.
We're seeing meaningful increases across all metrics, we use to monitor sales progress versus early selling season progress a year ago at this time.
Our total active pipeline, our new pipeline development year to date and year to date sales wins so far.
This early selling season data gives us confidence that the macro trends driving demand for fertility benefits combined with our recognition as the leader in this space position us well to continue to sustain our momentum from last year's selling season into 2022.
Given the caliber of the companies that we work with today or engaging with in our current active pipeline is clear the projects become the provider of choice for facility solutions amongst the best known and most successful companies in the world.
Key contributors to our sales success has been a high rate of member satisfaction and in 2021, our NPS score increased to the highest it's ever been to plus 81.
Given that most health care companies routinely score barely above zero or a negative digits. We are incredibly proud of this result, which indicates that our members continue to be extremely satisfied with the services, we provide them and the results we achieved for them.
This is the fourth consecutive year, we've increased our NPS, which speaks to our ongoing focus to maintain or improve member level services, even as we continue to rapidly expand the business.
We ended 2021 with more than twice as many clients and covered lives as we had at the time of our IPO a little over two years ago and over that period of time, our NPS, which is already at an industry leading levels increased by an additional 10 points.
January 2022, we launched the project the benefit to our largest ever cohort of new clients in covered lives.
We have a proven track record of scaling our functions and resources that are in that are needed each year in anticipation of the step function increase that we see in our business and I'm pleased to report that this year's record client launches had been successful across the board.
We began 2022 and our strongest ever competitive position with a solution that is unparalleled.
Lastly, we remain focused on developing and introducing new enhancements to our solution.
This year, we're looking to increase the level of support they provide that we provide to our male members specifically addressing those issues affecting male infertility by expanding our service and added new capabilities. This will provide us with an enhanced product for up sell in the future.
When looking at the underlying causes of infertility male factor infertility, meaning the male partner has an issue that has made conceptually more difficult is diagnosed equally and as often as female factories and while our reproductive endocrinologists as often able to effectively treat the couple regardless of the underlying cause in a select number of cases a reproductive.
Your outages are you may be beneficial to properly diagnose and treat the issue for the male partner.
Less than 20% of urologists in the country focused on reproductive health issues and the carriers may not have this subset of providers or coverage of these services and their network. This lack of coverage creates a gap, which is the issue that project specifically addressing with this enhanced offering.
Separately, we're also expanding our geographic footprint by building our solution will be offered in the Canadian market.
This is a natural extension for us given that many of our existing clients have employee population there.
Although the Canadian government provides universal health care to its citizens comprehensive fertility coverage is not included in that program.
Additionally, the employer supplemental coverage of utility is even further behind where the U S was when we launched our benefit in 2016.
As a result significant majority of Canadians have no coverage today and are forced upon treatment on their own when they can afford to do so.
Companies that do provide a fertility benefit under their supplemental health plans typically self on these plans in much the same way orange employers' sponsor health coverage here in the U S. We have a clear opportunity to address this unmet need in Canada, where we can help educate and drive awareness and ultimately help drive access to care similar to what we've been achieving here in the U S.
We've been leveraging our relationships in the industry to build the Canadian network of bleeding providers, which we expect to manage in much. The same way that we do our U S network actively monitoring the patient experience, ensuring adherence to best practices and measuring outcomes to ensure that our members are having healthier pregnancies and greater overall success and their family building journey.
We're excited about these new areas of focus and we will update you on our progress in these areas, including timing for go to market on future calls these aren't expected to have an impact on this selling season, but they should set us up nicely for future selling seasons beyond 2022.
As the leading fertility benefits manager, we've developed a significant competitive advantage in the marketplace. One significant factor is that we already have the most comprehensive fertility data set in the industry and that data set grows significantly each year in.
In 2021, we manage over 28000 art cycles up nearly 50% from the prior year and scale, which we are growing our cycles continues to expand our insights, which then widens our competitive advantage because it deepens our understanding of the ways people are pursuing family building as a result progeny is in a unique position to continue to advance it services.
To enhance the member experience, while also delivering value to our clients.
I'll turn the call over to Mark and he'll walk you through the results in more detail Mark. Thank you Pete and good afternoon, everyone. I'll begin by taking you through our fourth quarter and full year 2021 results and then provide our expectations for 2022.
In the fourth quarter revenue grew 27% to $127 6 million, while revenue increased meaningfully on a sequential basis from the third quarter driven by strong utilization in October and November the onset of the Omaha and variant impacted member activity in December as Pete mentioned, a moment ago the sequential monthly.
And we actually experienced in December due to omicron was nearly twice what we were anticipating resulting in a negative impact to revenue of approximately $9 million in the quarter.
And while <unk> continued to have an effect on activity in January we have seen member utilization returned to more typical levels in February and based on the visit the visibility we have also in March.
For the full year revenue grew 45% to $500 6 million. We are pleased to have reached the milestone of a half a billion dollars in annual revenue and what was just our six year of offering to benefit. It was only three years ago in 2018 that we crossed $100 million in annual revenue, which puts the rapid growth we've achieved and to pursue.
Active.
Turning to the components of the topline medical revenue increased 19% in the fourth quarter to $89 2 million, while growing 40% over the full year to $355 6 million.
The growth in medical revenue, both in the quarter and the year was driven by a higher number of clients in covered lives. There are though our growth and growth in the fourth quarter was impacted by the AUM cranberries.
Pharmacy revenue increased 50% in the fourth quarter to $38 4 million over the full year pharmacy revenue grew 59% to $145 million.
Our growth in pharmacy was primarily driven by the increase in number of clients, who have projecting our access compared to a year ago, though as was the case for medical revenues, our pharmacy revenue growth in the fourth quarter was also impacted by on the ground.
Since launching the pharmacy benefit in 2018, we've seen an uptick each year as a percentage of our newest clients selecting the integrated benefit two years ago, 75% of our new clients chose to launch with the pharmacy benefit that increased to 84% the following year and in the most recent selling season, 93%.
Clients added <unk> <unk>.
As a result on a blended basis the percentage of our clients who have progeny Rx is growing from 73% in 2021% to 81% of all of our existing and committed clients for 2022.
And while we're very pleased with the adoption of progeny Rx to date, there continues to be a meaningful future upsell potential with those remaining clients.
We ended the quarter with 191 clients, representing an average of $2 9 million covered lives during the fourth quarter. This compared to 135 clients or an average of $2 3 million covered lives in the fourth quarter last year, reflecting a 25% growth in covered lives over the past year.
The growth in covered lives throughout 2021 was again, the result of new client additions as well as organic growth within the existing client base as a number of our clients continued to expand their workforce during the year.
Turning now to our utilization metrics during the quarter 7623 art cycles were performed reflecting a 33% increase as compared to the fourth quarter of 2020 for the full year art cycles grew nearly 50%.
Reflecting the continued high rate of demand, we're seeing for fertility services among our members.
Female utilization, which is what principally drives our financial results given that the female partner is the one who undergoes the more extensive treatments with utility was <unk> 46, this quarter as compared to 45% a year ago.
For the full year female utilization was 1.07% this compared to <unk>, 97% in 2020, which I'll remind you had been negatively affected by the temporary closure of most fertility clinics at the onset of the pandemic in the spring of 2020.
As a point of comparison, our female utilization rate for 2021 is consistent with what we reported in 2019.
While utilization can vary due to a number of factors the recovery in our full year utilization to what we had been seeing pre pandemic reinforces both the essential nature of fertility treatments as well as its time sensitivity for most patients.
Treatment mix is also a contributing factor to revenue as utilization associated with consultations and diagnostic testing and procedures, which occurred during the early stages of fertility treatment contributed to lower revenue value as compared with more advanced procedures that happen later and our members fertility journey.
Interruptions in the member's journey caused by the emergence and rapid spread of element of the omicron Varian also negatively impacted mix in December .
Turning now to our margins gross profit increased 22% from the fourth quarter of 2020 to $25 1 million.
Our reported gross margin of 19, 7%. This quarter reflects a decrease of 90 basis points from the fourth quarter last year due primarily to the impact of noncash stock based comp, which was partially offset by the operating efficiencies in care management.
In early November we issued a broad based grant of new equity to our workforce, which has increased the level of noncash stock based compensation and our cost of services and operating expenses exclude.
Excluding the impact of stock comp in both periods gross margin in the fourth quarter increased 170 basis points over the fourth quarter of 2020 to 23, 4%, reflecting the impact of renewals with our providers and pharmacy program partners as well as operating efficiencies in the delivery of care of our care manner.
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For the full year gross profit increased 60% to $112 1 million.
Our reported gross margin of 22, 4% for the full year reflected an increase of 210 basis points from 2020.
Gross margin, excluding the impact of stock based comp was 24, 2% in 2021, reflecting an increase of 300 basis points from a year ago due to the same reasons that affected the fourth quarter.
The press release issued today includes a table reconciling the impact of stock based comp to gross profit and gross margin as well as our operating expenses lines.
Turning now to operating expenses sales and marketing expense was 6% of revenue in the fourth quarter as compared to four 8% in the fourth quarter a year ago, excluding the impact of stock comp in both periods sales and marketing was three 6% of revenue in the quarter, reflecting an improvement of 60 basis points.
From the fourth quarter a year ago.
For the full year sales and marketing was 4% of revenue, reflecting a 40 basis point improvement from 2020.
When excluding the impact of stock comp sales and marketing was two 9% in 2021, an improvement of 90 basis points from 2020.
Although we've continued to rapidly grow the business through the combination of adding more new clients and lives each year as well as by retaining a very high rate of existing clients, we have been able to improve our sales and marketing efficiency each year.
G&A was 13, 8% of revenue this quarter as compared to $14 seven in the fourth quarter, a year ago, excluding stock comp from both periods G&A as a percentage of revenue improved by 410 basis points.
The improvement is primarily due to the elimination of previously disclosed legal expenses, which didn't carryforward into 2021.
For the full year G&A was 11, 9% of revenue, which compared to 13, 5% in 2020.
Excluding the impact of stock comp from both periods G&A was eight 1% of revenue in 2021. This was a 320 basis point improvement from 2020 and reflects the elimination of certain legal costs as well as the efficiencies that we've realized in our back office functions as we expand the business.
The margin improvements we've made throughout the business adjusted EBITDA increased significantly in both the quarter and the year.
In the fourth quarter adjusted EBITDA grew 28% to $15 1 million adjusted EBITDA margin of 11, 9% in the fourth quarter reflected a modest expansion from the year ago period, as we ramped up resources in Q3 and Q4 in advance of the Onboarding. The record number of clients we sold for 2022.
For the full year adjusted EBITDA more than doubled to $67 3 million, primarily reflecting our higher revenue and improved operating leverage across the business.
Adjusted EBITDA margin of 13, 5% in 2021, reflecting an increase of 410 basis points from 2020.
We continue to believe that margin incremental revenue as an indicator of where the business is trending on that basis, our adjusted EBITDA margin on incremental revenue in 2021 was 22, 4%, reflecting a meaningful increase as compared to the $16, 7% that we achieved in 2020.
The increase highlights our expanding rate of margin capture on new revenue.
Net income was $15 1 million in the fourth quarter or <unk> 15 per share this compared to net income of $39 1 million or 39%.
<unk> per share in the fourth quarter of 2020.
The decrease was primarily due to a lower benefit for income taxes as the fourth quarter, a year ago reflected a $38 million tax benefit in connection with the release of our valuation allowance on deferred tax assets as well as the higher noncash stock comp.
Stock based comp expense in 2021, partially offset by operating efficiencies realized on our higher revenues.
And 2021 net income was $65 8 million or <unk> 66 per share this compared to $46 4 million or <unk> 47 per share in 2020.
The increase was due primarily to operating efficiencies realized throughout the business, partially offset by a lower benefit for income taxes.
Turning now to our cash flow and balance sheet.
Operating cash generated in the quarter was $8 8 million as compared to cash generated of $6 5 million in the year ago period.
The improvement was due to our higher profitability as well as ordinary timing items in both periods.
For the full year, we generated $26 million of operating cash flow, which compares to $36 2 million a year ago I'll remind you that our cash flow in 2021 reflects a change in the timing of payments that were receiving under the new pharmacy partner arrangements that were entered into at the beginning of the year and in fact, we chose to leverage the strength of our <unk>.
Balance sheet by lengthening the timing of when we receive our pharmacy rebates in order to deliver more margin and profitability.
As of December 31, we had total working capital of approximately $160 million, reflecting $119 4 million of cash cash equivalents in marketable securities and no debt.
Turning now to our expectations for the first quarter and full year 2022.
For the first quarter of 2022, we are projecting revenue of between $165 million to $170 million, reflecting growth of between 35% and 39%.
This range incorporates the impact that the omicron variant had on member activity.
In January as well as a return to more expected levels in February and March.
Our full year guidance reflects the clients and Upsells that are expected to go live in Q2 and the small portion that are expected to go live at the beginning of Q3, which collectively account for 40% to $45 million of anticipated revenue in 2022.
For adjusted EBITDA, we expect between 23, 5% to $24 $5 million, along with a net loss of between $2 1 million to $1 4 million or between <unk> and <unk> <unk> loss per share on the basis of approximately 102 million fully diluted shares.
I'll remind you that our net income projections do not contemplate any discrete income tax items, including the income tax benefit related to equity compensation activity to.
To the extent that the related activity occurs we will continue to benefit from those discrete tax items throughout 2022.
For 2022, we project revenue to be between $730 million to $775 million, reflecting growth of between 46% and 55% or 50% growth at the midpoint of our range.
For adjusted EBITDA, we expect between $110 million to $122 million and for net income of between a loss of $1 4 million to income of $7 million or between a loss of <unk> and an income of <unk> <unk> per share on the basis of approximately 105 fully million fully diluted shares.
At the midpoint of this guidance, we are expecting to see continued expansion of our margins in 'twenty two with adjusted EBITDA margin on incremental revenue of more than 19%.
I wanted to close by highlighting that we recently issued our first corporate social responsibility report, which is available now on the Investor Relations section of our website.
<unk> seen a growing number of our public company clients referenced the project benefit in their CSR ESG reporting because these companies have recognized that project provides them with a tangible way of demonstrating their commitment to the principles of diversity equity and inclusion in their workforce.
Our benefit provides all populations with equal access to care, eliminating the discriminatory discriminatory impact of traditional plan designs. While also delivering culturally competent care that is specific to the needs of diverse populations and achieving superior clinical outcomes. Let me now turn the call back over to Pete.
Thanks Mark.
We believe the increasing focus on ESG, among leading companies is providing us with additional momentum in our new sales efforts.
We begin 2022 as I mentioned before in our strongest ever competitive position as the brand of choice for fertility and family building benefits and with the macro trends that have been fueling our rapid growth intact and a business. That's been built to achieve sustained long term success. We look forward to providing you with further updates on our progress throughout the year.
With that operator, let's open it up for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your Touchtone phone at this time pressing star to remove you from the queue should your question be answered and lastly, welcoming. Your question. Please pick up your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Once again Thats Star one if you have a question or a comment in the first question is coming from Anne Samuel from Jpmorgan. Your line is live.
Hey, guys. Thanks for taking the question.
Maybe you could provide a little bit of color on what kind of utilization recovery is embedded within the full year guide. It seems like the first quarter is only about 70% of where you were expecting shake out, but you've said that February recovered back to normal levels. So that feels a little low just was hoping you could provide a little more color there.
Yes so.
Hi, Andy.
As far as the recovery goes January really reflected what was happening with case loads and how people were generally seeing the impact of <unk> and its <unk>.
<unk> relatively mild so we've seen the activity really come back pretty quickly in February and March So our our guide for Q1 and for the full year sort of factors in everything that we're seeing as we sit here now.
As far as and I didn't quite catch your 70%, but I.
I think if you're asking sort of Q1 and how it relates to the full year.
Just sort of remind that generally the first quarter and the first half of the year tend to be a little bit less than the full year overall in terms of the percentage of revenue sort of evenly spread.
I'd, just remind us of new clients as they get up to speed.
<unk> typically have a higher proportion of initial consults in the earlier months as they were progressing along their member journey.
If you look so for example, the way that we model. This all out in detail by client as we do all of our expectations and projections, but we also do sanity checks and.
On what we're seeing and so if you for example, if you take 2021 and you look at the first quarter and you look at its relationship to the full year now if you add the $9 million that we've mentioned that dropped off here in December youre looking at or you have to as the.
The ratio of about $4 two to one so if you take our guidance for Q1 and you extend that out by that same ratio and then add the revenue.
For clients that have not yet launched here.
That will be launching here in Q2.
A small number and early in Q3 of about $40 million to $45 million that gets you pretty close to what our full year guidance.
That's really helpful color. Thank you and then you noted in your remarks that Theres some time sensitivity to fertility. So how should we be thinking about where these loss cycles are going debate you expect to see some kind of catch up at any point.
Yeah, Here's how I think about it right to the extent that anyone is deferring treatment, whether it's hesitation relative to the backdrop of the pandemic, whether it's the hesitation that we saw over the summer relative to.
What we believe was.
Faster reopening I think and the impact of our focus to filing to sort of take advantage of getting out of the house again.
If you will go on vacation et cetera.
It cycles right and so to the extent that those are deferring and they do effectively come back onboard those that learned that they have a challenge with having a baby naturally a need fertility, but then have trepidation in a new cohort sort of its cycles and so it.
It catches up in the short term relative to those deferred at some level and we never know exactly how many deferring deferred indefinitely.
But those that become aware of the challenge that they have that are newly aware, but then also have any trepidation are going to sort of defer and so it sort of cycles over time.
So it doesn't all come back all at once because everybody doesn't understand all once that they even have a challenge and something that you learn is the reason why utilization happens all year long.
People at different points in time make a decision to try and have a baby and then.
<unk> learned that the challenge.
Throughout the year.
That makes sense and if I could just squeak in one more you know you've been seeing some really nice margin expansion, particularly on the gross margin recently.
Just wondering how much more room is there for expansion and what made some of those drivers be there.
The expansion that will always be inherent in our business is primarily around the care management services ratio to the extent that they're embedded in cost of operations and to the extent that we continue to grow the business at the rate that we're growing it youre going to see continued expansion and leverage off of those services.
And then to the extent that there are opportunities in the future around the entire supply chain. If you will of what we deliver whether it's on the medical or pharmacy side as.
As we continue to grow in scale, we're going to hopefully be able to continue to take advantage of of that purchasing power that we have and as we always do we share a little bit with our clients and we keep a little bit. So I can't tell you how good that's going to be or sort of how much it's going to be I can just tell you that based on where we're at in our growth cycle. We believe that we'll be able to continue to explore.
Those margins.
That's great. Thanks, guys.
Okay. The next question is coming from Michael Cherny from Bank of America, Michael Your line is live.
Good afternoon, and thank you for all the color so far.
Mark if I can I would love to dive a little bit more into the revenue growth guidance clearly theres a lot of moving pieces you alluded to over the course of 2021.
You also noted it.
It seems like there's a good line of sight of visibility even into April that being said as you.
Think about the guidance, especially the range of the guidance being very wide on the revenue side.
What are some of the moving pieces youre looking for to get yourself comfortable with different areas low end midpoint high end of guidance.
As you think through what you've learned during Covid is there another potential set of leading indicators that you think could be more important understanding upside downside to guidance over time.
So look.
Right now we have really good visibility obviously into what's happened already so January and February and a pretty good view on March we do have an early peak I'd say it at April but again, you have to be a little bit careful on it.
Extrapolating really big numbers.
But again, we take all of that into consideration is what drives our models I think may be giving you some color around how we view.
How we view the guidance itself and the range that we put out there so on.
On the high end.
That reflects what we're seeing now and it reflects a normal level of utilization and mix et cetera.
We obviously have a more sizeable guide because.
The numbers overall or is that much bigger. So so that's obviously driving a big part of that when you look at the full year.
So when you look at the overall range, though it does factor in.
Some level of perhaps less favorable mix.
Some slight changes in utilization because it does vary from from time to time quarter to quarter. So maybe some slight unfavorable changes in those patterns.
Possibly the impact of a variant that we don't know about right now.
But it also factors in and I've already mentioned it that we have a little bit higher number of clients that are launching in Q2 and Q3 than we normally do.
And that's just a factor of contracting in there.
Body's committed it's just a factor of when they are choosing to launch and that represents about 40 to $40 million to $45 million.
To the extent that they decided to delay that at some point any further.
That's a risk that would effectively hopefully be caught up within within the range that we've put out there. So those are some of the big pieces that we're looking at as we considered that with.
Okay.
Along those lines you mentioned.
Understandably the starting point to start the year of more initial consults in visits and that being said over the course of 2021 I think revenue product cycle dropped fairly meaningfully over the course of the year.
Where are we looking for the turn and what do you think the most important parts of a drive to determine that number.
Yes, so I think youre looking at.
Youre looking at mix that impacted us in ways that was really abnormal for us I know we talked about that.
Certainly in the in the middle of the summer as we saw sort of a pause.
<unk> and treatment.
Progress. So when you have those initial I mean, you always start with the initial console, which is comparatively lower revenue. If you pause your treatment at that point the impact of that is overall revenue dropping or if youre in the midst of your treatment.
Really that's it's similar pattern that we saw there was a number of things that obviously affected December but that was also something that we saw in December where the mix of revenue was a little bit slowed.
Thank you.
Okay.
So you can think about is that as we continue to grow across the country right.
<unk> from from earlier years sort of pre Covid right, where were the concentration of our members and our member experience and utilization was on the east and West Coast, where you do have the highest prices as you continue to grow the dispersion of members engaged across country grow rates do vary and so it's not necessarily that it's going to as you describe it.
Churn and sort of get back to those low levels, because it's all about mix and averages in prices across the country and so its not as simple as sort of.
We impacted by by mix of utilization during potent but its also the reality.
Of our growing.
Client base are growing member base across the country and borrowing prices across the country that are primarily concentrated as they were in the early years much more so on the east and west coasts disproportionately versus where we're at today.
Got it thanks, guys appreciate it.
Okay up next we have Glen Santangelo from Jefferies. Glenn Your line is live.
Yes, thanks for taking my questions and good evening.
I just wanted to follow up on the previous questions around the revenue guide maybe in a couple of different ways.
And I apologize if I missed this but I know you are expected to be at 4 million members do we know exactly when youll be at that 4 million member Mark I seem to remember I thought it was second quarter or middle of the year.
Yes, yes second quarter.
The majority of those that have not yet launched we'll be launching in the second quarter. There's a few in Q3, but it's a comparatively smaller right right. So I guess my question is if you look at the membership growth sort of year over year, even if you use.
The 4 million members I mean, your membership growth is a good chunk below where your revenue growth is kind of implying some uptick in utilization in now where we're sitting with January maybe being a little bit behind the eight ball as we look to the midpoint of your 'twenty. Two revenue guide I think we're all trying to understand there is.
You said, it's sort of incorporates what youre seeing today, but are we do we indeed improvement from you where.
Where utilization currently sits to ultimately get to the to the midpoint of that guidance I think that's what we're all trying to understand.
Yes.
The biggest driver of why your revenue growth is outpacing your member growth easier adoption of Rx. So to the extent that <unk> is a much bigger part of your existing client base. That's alive and they are also part of the new client starts to be well from an upsell perspective.
In there as well that's going to help drive the overall revenue number vis vis your your.
You remember growth and you also got to look at number.
Membership growth on average for the year, not just where we're exiting the year, but on average for the year versus where we started the year. We're at roughly $2 3 million I went up to $2 9 million. So its really on average and how much you are growing and how much you'll you'll continue to grow and remember the last piece is that the existing client base just like it grew this year.
There is going to grow at the same rate or not we'll never know with the existing client base is going to start the year with a number of members in eligible lives and as they grow as companies more and more members will be eligible for the benefit throughout the year. So you got to factor all of those things in which is what we do in our detailed models when we put out the overall guidance.
But again, even at the high.
That basically assumes a normal level of utilization. So although January was somewhat affected by omicron in February and March it we've seen really good activity there we're not necessarily.
Writing an extra little bit of extra goodness in February and March through the balance of the year. It is based on a.
What would be a normal level, okay. Perfect and then maybe just a quick follow up on the expense side I mean look at the EBITDA guide the adjusted EBITDA Guide seems it seems pretty decent I was kind of curious I wanted to ask you about the stock based comp you talked about a fair amount in your prepared remarks, if I look at that 22 stock based comp level.
Of a $110 million I mean, if I'm, if I'm comparing that correctly to 2021 that number is up almost forex and so you mentioned that that stock award that you gave to everyone. In the company I'm kind of curious could you give us more color around that award did anything else change in your comp plans.
Are you, replacing any type of cash compensation with equity compensation any more details around that would be helpful. Thanks I'll answer the last part of your question first we're not replacing any level of cash comp stock comp you have to remember that were recently public as a result of being recently published the significant amount of grants that were out there.
Already we're pre IPO at a much lower level when you do a broad based grant even though the shares relative to shares outstanding in our existing comp plans were small we are granted.
At a much higher stock price and you do a black scholes value, it's going to have a much bigger impact from our stock compensation perspective, which is why we break that number out and we and we give you the color around our results with and without stock compensation. So so we're not doing anything different in fact, there is still a significant amount of remaining shares.
That we have available to grant that we didn't grant.
And so we just did what we felt were we're very judicious in how we do those grants we did a level that we felt was important relative to the existing client base.
Shares they had remaining in shares that that we put in place to sort of continue our retention, but but the jump up is really a function of just the straight price at the time of grant, which was way higher than than what we had prior to that in 'twenty 'twenty. One 'twenty any year, you look at where the majority of shares were issued.
Pre IPO.
And we will be filing our 10-K tomorrow and obviously the usual disclosures in and around this will be in there. So you'll you'll be able to very clearly see.
That step up in black sholes valuation that pizza talking about between what what had been previously granted an outstanding versus this this grant that we did well so it will be for the year, but substantially in November .
Okay. Thanks for the detail is very helpful.
Up next we have Sarah James from Barclays. Sir Your line is live.
Thank you.
So you guys talked about 22 margins on incremental business.
Over 19%, which is a step down from the $22 four.
'twenty one is that just conservatism or is there a different mix going on.
Sure.
<unk> type of investments going on that.
With Jive the step down.
No actually I think the answer is actually fairly straightforward here. So in in 2021, we do have a bit of a favorable comparison versus versus 2020, you'll remember that we had we had that deep drop in revenue in Q2 of 'twenty as the clinics were being closed in the early days of the pandemic.
And we retained all of our staff.
During that period in order to one service the members because they were still going through transition at that point.
But also we hoped and it obviously came to past that.
Activity would ramp back up really quickly, but that that period alone. It was sort of enough to drive a few points that youre seeing between between the favorable results here in 'twenty, one compared to 'twenty versus what we're now guiding to for 2022.
Okay.
And then how do you think about client size.
For the next few years.
The companies in your pipeline.
You're talking to them.
You had a little bit of a step down in clients. This year is that.
You're probably gonna look as the market matures.
Or was it kind of like a one off.
Not sure.
About the step down you're referring to from a new client sales perspective.
In 'twenty, one and for 2022 launches, we return back to normal levels in terms of average client size.
And the lives that they represent.
Is the 2020 selling season that launched in 2021, there were a lot smaller because a lot of a lot of the larger companies paused their benefits is that we're managing through the their workforce being a remote workforce.
Dramatically and so so we're choosing not to make many benefit decision changes based on what we can see right now in our pipeline.
It looks more like it did for 'twenty, one selling season than it did in sort of the dip that we experienced in 2020.
Okay. Thank you.
Okay. The next question is coming from Stephanie Davis from SBB Leerink. Your line is live.
Hey, guys. Thank you for taking my question can you kind of answered.
Andrew.
Acquire ample about something like that they get a little more what gave you the confidence to be a 'twenty two guidance.
Was that reflective of some cushion baked in or did you just find out about the RF attach rate more recently.
The Jaguar at the outside.
Okay.
I think mark.
Went through sort of all the different factors that went into our guidance that we put out there both high and low end of the range and all the components, including the timing of.
New client starts at the beginning of the year versus the portion of those that are starting in Q2 and a little bit in Q3.
It's really all of those things rolled up that give us.
Plus obviously the current activity relative to member engagement that we're seeing already for February March would have better visibility into April et cetera that we're seeing that we use is predictive for what we should expect during the year. So really those are all the factors I'm not sure. There's any other color. We can give you relative to our expectations, but just to.
Tell you that it's been.
Just on sort of all of those factors all rolled up into what ends up being in the guidance that we're comfortable putting out there and just based on the attach rate when we get commitments from clients. We were getting at was we have again preliminary information about the size of the client the number of smart cycles. They want but also whether or not there is good.
They anticipate.
Launching with the project benefit and so we obviously want to get that under contract get the clients launched and to really see the activity around it but.
But that's not sort of to us anyway that the attach rate isn't really very new information I think we even commented at Jpmorgan that we had an uptick in the take rate for this new.
Cohort of clients that are going live.
Yeah understood I'm, just trying to to ask kind of a dumb question.
I see.
Thank you.
Yeah.
Yes.
Utilization.
Then just to the the big uptake in project could you maybe walk us through what pushed so many folks over the finish line.
The economics of bundling versus what we've seen.
<unk>.
Yes.
I think we've talked about sort of in the past when people ask the question Hasnt everybody didn't sign up for Rx right away and the answer in the past, which drives sort of why the adoption.
Both for new clients, but also for for up sells.
Now the other constituents within a company that makes a decision to.
Sign up with processing Rx versus their existing prescription.
Benefit or sort of you know.
Those folks right and so to the extent that more and more people both let's start with sort of new sales understand that better member experience and also the financial benefits of approximately Rx, that's resonated and has resonated.
As we continue to have a larger portion of sales that are not in as I said, they've been introduced to these ideas and prior periods and so when they buy that contribution of of new sales in the past sales year was bigger than it was a year before which is usually bigger than it was a year before that et cetera. So that's a contributor but overall it is just more awareness.
And less friction in the sales process. The other thing I would tell you that the our Cvs relationship as a channel partner that we announced in the beginning of last year also helped with that relative to new <unk>.
<unk> SaaS adoption relative to pricing the Rx, but overall, it's the it's the.
Understanding of a way better member experience when you are.
When you're managing the benefit on the medical and RF side under one umbrella because they are pretty integrated in terms of the in terms of the solution.
Super helpful. Thank you Bob.
The next question is coming from Dev, where sharia from Bahrenburg. Your line is live.
Hey, good evening can you hear me.
Yes perfect.
Yes, sorry, I caught me with that.
I was just trying to get some sugar in here.
Alright, I think we've got some good color on utilization I, just wanted to circle around kind of the sales side of things.
I think in the Q3 call. There was a mention that maybe a portion of the 85 client adds a portion of that could have been kind of.
Delays from 2020 into 2021.
I know you mentioned kind of strong.
Susan.
Season here.
The step up in kind of the number of clients.
Our client adds from 2020 to 2021.
Do you expect kind of a similar step up.
In 2022 any color on that would be helpful and I have a couple of follow ups. Thank you yeah.
So no I wouldn't.
Certainly it's early in the sales year. So so we don't know where we're going to end up but all indicators are that that.
The sales momentum that we experienced in 'twenty, one should continue into 'twenty two when I say that I mean, our goal has always been to add more lives and logos than we added in the prior year right.
The increase in new sales.
One both in lives and logos in 'twenty, one versus 'twenty sales year was pretty pronounced.
And impacted by the fact that in 2020 as I mentioned before mostly large clients chose not to make any benefit changes not just in fertility, but in general any benefit changes and we want a lot of smaller clients and then even the volume was less.
Because people were managing through in companies, we are managing through a remote workforce that they weren't at that time used to two.
2021 returned to more normal levels.
So our comments around sales momentum and what we're seeing so far is really around the goal that we've always stated which is to sell more logos and lives than we had in the prior year.
And so I was pointing to those comments.
Yeah.
Okay that concludes today's Q&A portion of the conference call I'd now like to turn the floor back to James Hart.
For closing remarks.
Thank you John and thank you everybody for joining us. This afternoon. Please be sure to reach out to me. If you have any follow up questions. Otherwise, we look forward to seeing you at a couple of the upcoming conferences and then our first quarter earnings call.
In spring.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your thinking at this time and have a wonderful day. Thank you for your participation.