Q3 2023 Progyny Inc Earnings Call
Good day, everyone and welcome to the progeny, Inc. Third quarter 2023 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.
It is now my pleasure to turn the floor over to your host James Hart, Sir the floor is yours.
Thank you Matthew and good afternoon, everyone welcome to our third quarter Conference call with me today are Pete and FTE progeny.
Progeny, Michael Stern, 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 our comments and responses to your questions today reflect management's views as of today only.
Including statements related to our financial outlook for both the fourth quarter and full year 2023, and the assumptions and drivers underlying such guidance, including the impact of our sales season, and client launches and our expected utilization rates and mix are anticipated number of clients in covered lives for 2020.
The expected benefits of our pharmacy program partner agreements, including future conversion of adjusted EBITDA to operating cash flow the potential benefits of our solution, our ability to acquire new clients and retain and upsell existing clients, our market opportunity and our business strategy plans goals and expectations concerning our market position future operations and other.
Our financial and operating information, which are forward looking statements under the federal Securities Law actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with our business as well as other important factors for a discussion of the material risks uncertainties assumptions and other important.
Actors that could impact our actual results. Please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During the call. We will also refer to non-GAAP.
GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin on incremental revenue more information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures are available in the press release, which is available at investors that progeny dot com I would now like to turn the call to compete.
Thank you Jamie and thanks, everyone for joining us this afternoon.
We're pleased to report that project had a very strong third quarter. Both in terms of our financial performance as well as in the continued execution of our go to market activities.
Activity, which include new client acquisition and retention of existing clients and the further diversification of our business by expanding into new industries. While also adding new channel partners have positioned us for another year of strong growth in 2024, with one 3 million new covered lives sold as well as the near 100% rich.
Tension right for the eighth year in a row.
Before I get into the details of the sale season, let me begin with the highlights of our financial performance, we had record quarterly revenue of $281 million, reflecting 37% growth over the prior year period.
As well as record adjusted EBITDA, which increased 43% over the third quarter of 2000 $22 million to $50 million.
This yielded an adjusted EBITDA margin of 17, 17, 8%, which was an 80 basis point increase over the prior year period.
As we've seen throughout 2023, our results this quarter once again reflect that member engagement remains healthy demonstrating the importance of companies offering this benefit as members pursue the treatments they need in order to achieve their family building goals.
Is it prevalence of infertility continues to rise with more people now needing assistance than ever before and with millennials routinely sighting family building benefits. It's one of the most relevant factors when deciding where they want to work with.
<unk> seen how fertility and family building solutions have increasingly become important to employers as they look to meet their recruitment satisfaction and retention goals.
<unk> continued focus on value to our clients and member satisfaction remains the foundation for our ability to lead and grow the market through a combination of a unique plan design active management of the member experience and the collaborative relationships, we forged with the providers in our proprietary network. We've continued.
To distinguish ourselves as the provider of choice for fertility and family building solutions amongst the world's largest leading brands.
We're pleased with this year's sales season highlighted by adding one 3 million new lives from over 85, new client commitments demonstrating the market's continued adoption of family building solutions and further solidifying our leadership position.
Because a small number of these clients both sold in Washington. This sales year, we expect over 460 clients and approximately $6 7 million covered lives in 2024 and to put this into perspective at the time of our IPO just four years ago, We had 87 clients and approximately one.
$4 million I'm, sorry, 1.5 million covered lives, which means we have more than quadrupled our clients and covered lives since 2019.
Even with this sustained track record of success and want to our newest clients have all gone live.
Still remain at a very early stage of penetrating our market opportunity with just a mid single digit share of either the 8000 companies or the 100 million covered lives and our current addressable market.
Clients, we've added for 2024 reflect an exceptionally diverse cohort representing a wide range of industries, including chemicals manufacturing hospitality health care energy transportation software and telecommunications to name just a few.
Book of business now represents approximately 45 different verticals.
We continue to see strong momentum through the flywheel effect, where our initial win in an industry lays the groundwork for future success within that vertical as the other brands in that industry work to reestablish parity with the early adopters are good example of this is the labor market, where we won our first clients just a year ago and have had strong.
Secondly, our success, winning new clients across different types of Taft Hartley populations.
I was just one final anecdote of this dynamic a year ago, we want our first professional sports team client and this year, we not only want additional sports teams. We also won our first professional sports League.
We also continued to see a broad range and the size of the newest clients spanning from 1000 to well over 100000 lives, which further demonstrates that facility has become irrelevant benefit for any employer, regardless of the size of their operations or the industry in which they operate.
This season, we also expanded into our first federal government population, representing approximately 300000 covered lives government plants are large and attractive new channel for us, particularly as those groups continue to look to enhance their benefits and keep parity to the benefits at the corporate Counterparties provide.
Given the stringent requirements that any provider must meet in order to be approved to serve the federal market. We believe the flywheel effect has the potential to be even more impactful within government than what we've seen amongst corporate employers, which should make this an accelerated through our long term growth.
At this point the federal government has defined the fertility benefit more now than what we typically see.
To meet these requirements, we modified our usual scope of services and are expecting to see meaningfully lower financial contribution per engaged member from this population in 2024.
We are excited about this unique opportunity as there could be increased contribution overtime. If the coverage has brought in an additional larger one similar to what we see with our corporate clients.
Setting aside this unique client the remainder of our newest clients have continued to select robust levels of coverage offering two or three smart cycles on average consistent with what we've historically seen.
This year, we've also achieved our strongest ever adoption rate for property Rx with 98% of the newest clients taking the pharmacy benefit. This comes on the heels of last years, 97% take rate.
We believe our extraordinary success in selling the integrated solution is due to the significant combined cost savings, we deliver with integrated medical and RF services as well as our superior member experience that eliminates the risk of treatment delays, while also guiding the patient through a complex medication protocol.
Once all of these newest clients launch in combination with existing clients, who had the Rx benefit for 2024, we anticipate that approximately 93%.
Of our clients will have the integrated solution.
Our new sales activity is a critical focus for us and is the largest contributor to our incremental growth each year.
The existing clients and adding new services are also significant priorities and we're extremely pleased to have achieved a near 100% retention rate for the eighth straight year in a row, while also expanding the services that we're providing to our clients.
We believe our sustained success with retaining an extraordinarily high rate of our clients and lives underscores the demonstrable value that our solution delivers year after year, especially when you consider that our clients include many of the most analytical and data driven companies in the world.
As further evidence of the value inherent in our services, we continue to see existing clients looking to expand their positive benefit for 2024 with more than 20% of clients increasing their programs in some way for next year, either by adding more smart cycles, taking processing Rx covering more services such as donor tissue.
Our fertility preservation or expanding their adoption of serving servicing benefits in recognition of the many different pathways.
Of course employers typically have many priorities with respect to their health plan and benefit strategies and this year was more magnified in this regard in 2023, we've seen companies evaluating a number of areas from their concerns on overall medical cost trends, which resulted in increasing the valuations of health plans and benefit strategies.
As well as the rise of demand around G. L. P. One any overall ongoing macroeconomic uncertainty.
Even with these competing factors we've seen that facility has remained a significant priority and we are entering next year with meaningful tailwind behind us.
As in every year, a portion of the prospects in our pipeline and the sales yet or is it not now due to the competing priorities that I discussed previously this.
This year is no different and we have a healthy number of opportunities remaining in our active pipeline that are carrying over into next year.
We've gained considerable expertise over the years and effectively managing multiyear sales cycles and in fact in each of our previous selling seasons. Most of our earliest wins have been conversions what had once been and not know prospect and we would expect the same for 2024.
Accordingly, we are excited to be entering next year with a very healthy pipeline of advanced opportunities, which of course will be in addition to whatever new pipeline that we built through all of our traditional methods, including the channel partners will play a key role in broadening our reach and improving sales efficiency.
Earlier this year, we discussed the new partnerships, we forged with a number of leading organizations have or North Children's Hospital Association quantum health. In addition to our existing relationships with Cvs point solutions, and then where are only in the early initial stages with our newest partnerships. We're pleased with the progress we've made and.
We feel well positioned as we look into 2024.
To add to this already strong list. We're pleased to announce that we recently signed a partnership with <unk> health, who has selected projecting to be its preferred vendor for fertility and family building benefits, giving us access to the customers in their portfolio, which includes the clients of one of the largest health plans in southeastern Pennsylvania.
As with our other distribution partner relationships when Avista you help clients looking to ask utility to their benefit coverage property will be the preferred facility solution and will collaborate with them during the sales process.
We're excited about the potential of this new relationship and view. This partnership is enhancing our market presence, even further with health plans in 2024.
Demonstrating the strength of our competitive position and our differentiation in the market.
With that let me now turn the call over to Mark to discuss the quarter in more detail and provide our expectations for the balance of the year.
Thank you Pete and good afternoon, everyone I'll first take you through our third quarter results and then provide our expectations for the remainder of the year.
Revenue in the third quarter was $280 9 million, reflecting growth of 37% the growth versus the prior year was primarily due to an increase in the number of clients in covered lives as compared to a year ago.
As of September 30, we had 392 clients with at least 1000 lives representing an average of $5 4 million covered lives over the third quarter, which was consistent with what we told you to expect on our call in August this compared to 282 clients and an average of $4 5 million covered lives a year ago, reflecting <unk>.
91% growth in lives over the prior year.
I'll remind you that we added a significant number of lives in the year ago period more than 200000, primarily through early an off cycle launches, whereas a lesser number of lives were added in the current period.
And while we have separately seen an impact from workforce reductions at some of our clients. This year. The level, we saw with both consistent with what we had expected and this impact has continued to be fully offset by other clients that have been expanding their head count either through hiring or M&A.
In fact, this offsetting dynamic is consistent with what the labor Department has been reporting throughout the year with an average of well over 200000 jobs added each month and unemployment remains steadily below 4%.
Looking at the components of the topline medical revenue grew 35% over the third quarter last year to $175 1 million again due to our growth in clients and covered lives, while pharmacy revenue increased 39% in the quarter to $105 8 million.
Turning now to our member engagement metrics more than 15000 art cycles were performed during the third quarter, reflecting a 35% increase as compared to the third quarter last year.
Female utilization rate, which most closely corresponds to our financial results was <unk>, 49%. This quarter, an increase from four 4% a year ago and in line with the levels. We've seen throughout the first nine months of 2023.
We believe the level of engagement, we're seeing is reflective of both the high priority members continue to place on achieving their family building goals as well as the increasing need for treatment given the growing prevalence of in fertility as a medical condition.
Nonetheless, I'll remind you that utilization rates can vary from period to period due to a number of factors, including the time of year, the timing of new client launches demographic mix and plan design.
Turning now to our margins and operating expenses gross profit increased 36% from the third quarter last year to $62 6 million, yielding a 22, 3% gross margin, which was comparable to the prior year period, even as we continue to invest in our care management services.
Year to date gross margin has expanded by 70 basis points over the first three quarters of 2022, reflecting the efficiencies that we continue to realize through our growing economies of scale.
As we look over the remainder of the year I'll remind you that the third quarter margin is typically higher than what we see in the fourth quarter as Q4 reflects the incremental headcount that we bring onboard and supported the significant step up in covered lives expected as of January one.
Sales and marketing expense was five 3% of revenue in the third quarter, a slight improvement from the five 4% in the year ago period as the investments we've made to increase our go to market resources and channel partner relationships continue to be offset by the leverage we gained through our client acquisition and retention activities.
G&A costs were 10, 5% of revenue this quarter as compared to 11, 5% in the year ago period. The 100 basis point improvement is primarily due to the efficiencies that we continue to realize in our back office operations further demonstrating the inherent nature of our expanding margins on G&A is funky.
<unk> on our G&A functions as we grow.
With our strong topline performance in the operating efficiencies, we have realized adjusted EBITDA grew 43% this quarter to $50 million and adjusted EBITDA margin increased by 80 basis points to 17, 8%.
Over the first three quarters of the year adjusted EBITDA margin on incremental revenue was 28%. We continue to believe this measure highlights our rate of margin capture as we expand the business and is useful as a forward indicator of where the business is capable of moving.
Third quarter net income was $15 9 million or <unk> 16 per diluted share this compared to net income of $13 2 million or 13%.
<unk> per share in the year ago period.
Higher income in EPS as compared to the year ago to a year ago, primarily reflect the operating efficiencies realized on our higher revenues, which was only partially offset by higher stock comp expense and higher tax expense in the current period.
Turning now to our cash flow and balance sheet operating cash flow during the quarter was $54 2 million, which compares to $20 $9 million generated a year ago period.
Proven reflects our higher profitability as well the timing of certain working capital items in both periods.
Over the first nine months of the year operating cash flow of $151 million compares to $29 million generated over the same period last year with the improvement due primarily to our increased profitability as well as the amended rebate agreement terms that we discussed with you last quarter.
As of September 30, we had total working capital of $418 million, reflecting over $335 million in cash cash equivalents and marketable of marketable securities and no debt.
Now turning to our expectations for the fourth quarter and full year 2023.
Given the strong results we've achieved over the first three quarters of the year, we're pleased to be in a position to raise our guidance again for the third consecutive quarter.
For the full year, we now expect revenue to be between 1.087 billion to 1.0 95 billion representing growth of 38% to 39%.
We are also raising our guidance guidance on profitability. We now expect 2023, adjusted EBITDA of between $186 million to $188 5 million.
For net for net income, we expect between $58 3 million to $60 million or between 58, and <unk> 59 earnings per share on the basis of approximately 101 million fully diluted shares.
Our net income projections do not contemplate any discrete tax items, including any income tax benefit related to equity compensation activity to the extent that activity occurs we will continue to benefit from those discrete tax items.
With this guidance, we are expecting to see the continued expansion of our margins in 2023 with adjusted EBITDA margin on incremental revenues in excess of 20%.
For the fourth quarter, we are projecting revenue between $268 3 million to $276 3 million, reflecting growth of between 25% and 29%.
For fourth quarter adjusted EBITDA, we expect between $42 2 million to $44 7 million along with net income of between $9 7 million and $11 4 million are between 10, and 11 cents earnings per share on the basis of approximately 102 million fully diluted shares.
With that we'll open it up to the call for questions. Operator can you. Please provide the instructions.
Certainly everyone. At this time, we will be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Your first question is coming from Anne Samuel from Jpmorgan. Your line is live.
Hey, guys congrats on the quarter and thanks for the question.
I was hoping maybe you could provide a little bit more color on the government clients. I know you said that they differ slightly in their benefit versus your other clients. So I was just hoping you could help us understand maybe how that differs from a coverage standpoint and.
And then just how to think about the difference in revenue contribution for those 300000 lives versus your more traditional clients.
Sure Hi, this is Michael.
So couple of things on that.
First off the federal plans are governed by.
OPM.
They've recently this first year expanded into fertility coverage in doing that.
The expansion was really focused around on.
On the pharmacy side, and some light coverage on the medical side for <unk>.
As for the services that we're providing.
The medical and the pharmacy is not flowing through us and so the services that we're providing for the governmental group is primarily focused around our PCA and case management as well as services validation and so so for those two reasons to your to your question. The contribution is really going on.
A fraction of what we would normally expect.
All of that said, we're really excited to be at the ground floor of the new added benefits within.
Within the federal government as you know, it's a high bar for us, it's a high bar to get over to begin contracting in this space.
And we do see continued opportunity as they evaluate their benefits against other employers over the course of the coming years.
And that provides opportunity for expansion not dissimilar that we see to what we see on the on our employer business.
Services expanding over the years.
Very helpful. Thank you.
Thank you. Your next question is coming from Scott Schoenhof's from Keybanc. Your line is live.
Hi team. Thanks for taking the question. So another strong selling season, if you back out the 300000 lives from the federal contract you're getting to the kind of the same.
Selling season, we saw last year just.
Really strong.
<unk> to win new clients what are you seeing in the marketplace are you having to be more competitive in.
In the market with new.
Competitors entering this year versus last year, just wanting to kind of understand the selling season. This year you saw another.
Strong year, there so trying to get more color there. Thanks.
So I'll start and then I'll, let Michael add any comments.
It was not more competitive in fact, I would argue might've been a little less competitive.
Our overall <unk>.
Largest competitor remains the collection.
All of the payers throughout the country and then we also do see competition from the from the VC backed competitors.
Positives relative to the competitive environment were known losses to competitors, where actually way lower than last year.
And there were more not now as if you will overall than as opposed to sort of known losses again, each year, we continue to grow our market share and even against our competitors collectively we believe we do a good job in terms of of continuing to penetrate the market and expand and grow market share, but the environment wasn't any.
More impacted if you will and in some places arguably slightly loss from competitors.
Overall I think the.
Very positive selling season as you pointed out.
Given the backdrop of of both continued uncertainty in the macroeconomic environment given.
Our concerns with some clients around overall medical trend given concerns of some clients as a result of those medical trend cost.
Seemingly evaluating their overall health plans and their overall pbms and what Theyre doing overall with their medical plans.
On a heightened basis, if you will this year.
And even as they reviewed sort of alternatives, whether it's the <unk> ones that are out there are other things.
We're really pleased with the selling season.
Yes.
I would add is from a priority perspective, the strength of <unk> and also.
Also represents the priority that employers continue to put on family building in on an.
On these benefits.
Happy for how that turned out this year.
Great. Thanks for all that color guys.
Thank you. Your next question is coming from Julian dressing from Jewish Securities. Your line is live.
Thank you and thanks for taking my question first a quick clarification follow up on <unk> question on government plan are you implying that margins on that contract could be relatively higher even at a smaller revenue base stimulate and my main question is on <unk> guidance, just trying to understand why fourth.
Fourth quarter guidance implies a sequential step down on both revenue and margins I can't recall, if you guys had a year where revenues declined from Q3 to Q4 and with some pull forward from entire launch of happening. This year that was what I thought it would actually go up just curious on that trend.
Yes, so I'll do the first question and then I'll give mark.
Ill, let mark handle the second question Julien.
Regarding your first question, yes margins will be higher but revenue will be lower.
That's sort of how you have to think about it relative to the overall contribution to the financial picture.
It's probably the easiest way I can describe that March 22, yes. So on the on the sequential guide one of the things that you have to keep in mind that there are seasonal impacts that we see each year on let's call. It a same client basis.
When you get into the end of the year. There are a number of clinics that close for routine maintenance annual cleaning members actually we will defer their treatments to avoid going through their treatments during the holiday periods and for other reasons.
So there is a seasonal decline that hasn't been as evident in prior years, because we had so many launches in Q2 and Q3 of of large clients. For example in last year that ramp up as they are going into Q4. So it's been a little bit masked I think by that.
That's really on the revenue side and that obviously impacts EBITA margins as well and the thing I would again point out which was in the script, but that we build up our staff in Q4 as we're preparing to enter one one we do a huge step up in members and so the activity is very strong.
As we really began the year. So we have to bring all those teams on especially the member facing teams.
Throughout Q4 to be trained and prepared to do that so we see a step down in.
<unk> I think if you go back and look at the last couple of years, you'll see that the sequential change from Q3 to Q4 that we're now guiding to is pretty comparable to what we've seen in the last two years.
Okay.
One follow up if that guy again around utilization trends I understand there could be some variability.
But it has been pretty strong this year 10 basis point year over year, which is pretty meaningful just wondering how do you think about this trend.
Patrick longer term should we assume I consider 2023 trends as a new baseline or you think there could be some variability even in near term.
It's early to comment on utilization.
For next year I will tell you that every year as you add your existing client base as you combine your existing client base with the new client adds new client adds usually add slightly less utilization as an overall population than the existing clients, but there's usually some organic growth with existing clients.
Lions, which is why it's been balancing out as we continue to grow youre going to see.
Maybe a little less impacted that but overall.
I wouldn't say that this is the new baseline.
Year, we look at utilization levels, we look at it early in the year and we guide to what we're seeing at that time and then obviously you just as we have this year to the extent that we see any strength or changes in that but I think it's early to comment on what whether or not this is a new baseline or not relative to where we're at.
Great. Thanks, a lot.
Thank you. Your next question is coming from Sarah James from Cantor. Your line is live.
Thank you I was hoping THL AMC.
Selling season, a little bit more.
So first on the memory, so it sounds like <unk>.
And consensus was looking for but it also imply about 1000 lives.
Our client uptake and so kind of reversing the depth in 'twenty three how do we think about that trending forward.
And then I was hoping you could also walk us through the math on the new client ads I understand some of the 85 <unk>.
Decided to start early but I'm trying to bridge the 462, where we are now 85 ads.
I'll do the second part of the question first.
So weird echo.
I'll do the second part of the question first so so relative to bridging the.
New client adds versus the expected clients for next year, what we what we've seen this year is much is much more normal than we've seen in prior years. If you exclude last year new client starts that are in the during the year, our small clients not having a big any meaningful sort of contribution to incremental revenue realm.
<unk> to existing clients, but in terms of client accounts to start earlier in this year was no different so so.
So if you sort of just take the existing clients that we just reported that we're alive with.
It takes sort of the 85 and subtract the delta in the math of what we are saying for next year, that's roughly how many new clients with a small amount of lives each have already launched this year.
As it relates to the average per client.
We sort of.
Say this every year in our sales years, it's not a perfect science relative to who you add in which year and whether they are bigger or smaller we try and win all of them.
And the average is sort of play out I think the more.
Relevant point for us in terms of where we're at.
Relative to our addressable market is that there is plenty of opportunity relative to large and small clients.
That we can still go after and will.
And so the averages will play out whether they bounce around plus or minus 1000, as you point out in a given year, we sort of don't focus on that is must be focused on winning as many as we can.
Great and second question here is on your partnership it's really exciting to see.
The announcements ramp up this quarter, how should we think about the pipeline potential for future partnerships and how do you think about that materiality to your revenue correct.
Yes.
<unk> play play a significant role.
In.
In both pipeline activity as well as.
As well as obviously.
Closed and committed clients in business. So we would expect that trend to continue.
Yes.
We're excited about the partnerships that we added this year it's.
It's early and sort of the first year. So we would expect those partnerships to continue to evolve and continue to.
The increase in.
In there their impact.
And then.
The new partnerships around.
Yes.
And the opportunity to partner with our first.
Regional large regional health plan.
And importantly, collaborating with them to offer the project solution to clients of all sizes relative to the prior question. We're excited about that we sort of don't go into detail on partner by partner of what that impact will be but.
We're pleased with the ads of these new partnerships, especially since especially on the health plan side, we really just started recently focusing in that area.
Great. Thank you.
Thank you. Your next question is coming from Richard close from Canaccord. Your line is live.
Yes, thanks for the questions and congratulations.
I was just wondering if you could talk a little bit about.
Not now.
And your thoughts about that I mean, I know you talked about benefit.
<unk> and GOP ones and just curious in terms of how much of a change that was this year during the selling season and the thought process as these not now and go into the pipeline and opportunity to convert them next year.
Yes. This is Michael.
So.
Each year, there is always there's always competing priorities and other priorities that.
That employers are dealing with that get factored into the selling season, and certainly factor into that not now.
Pete referenced a few of those in the script you referenced one on the <unk>, obviously, there was upward pressure on.
<unk>.
On medical cost inflation in general.
And then some of the macro uncertainties in the broader economic environment certainly those all played a role in.
What is on the minds of employers and prioritize of employers.
But as I said in the.
And our fire.
Question fertility also remain.
One of those priorities and so specifically in the sales season.
We didn't hear specifically that.
Any one of those individual things drove and not now certainly we didnt hear specifically that focus around <unk> drove and not now, but some combination of all of those priorities lead towards sort of the decision to wait on adding a family building benefit until the next year.
That said as Pete referenced in the prepared remarks.
Much like prior years those not now.
Become a strong tailwind going into next year, and certainly we expect to see that that.
That trend continue as we go into 2024.
Okay and as a follow up I was curious on the partnerships can you just remind us in terms of is the go to market with those partners the same.
Across the various partnerships that you discussed today or is there some nuance to different partnerships in terms of how you go to market.
Yes.
They all have some general similarities to each other and sort of where where we're and how we're positioned certainly from that last mile contracting perspective, but each one also has a slightly different approach on where and how we fit into wearing.
How we fit into maybe other services that they're providing or where and how we fit into the medical coverage or the pharmacy side of the equation or from a more pure navigation perspective. So there is certainly similarities but each one has nuances and differences in how we go to them.
And we adjust we adjust that work with those partners as we launch and rollout to two account for each of those different scenarios.
Okay. Thank you.
Thank you. Your next question is coming from Allen Lutz from Bank of America. Your line is live.
Sure.
Good afternoon, and thanks for taking the questions. Pete you mentioned that more than 20% of current customers are increasing their programs by some amount, adding things like more smart cycles and covering more solutions, but is there any way to frame how much that's contributing to revenue.
And then my follow up.
You talked about with or not now is there a way to frame kind of the top of funnel or how much larger the overall pipeline has gotten year over year.
Sure.
As it relates to the to.
So the first question the best way to frame it is this.
The last year for example, we talked about 25% of clients.
Added.
Something to their benefit coming into 2023.
That was.
Probably the last big year of sort of processing the Rx as a contributor in revenue, which is the largest sort of revenue opportunity from an upsell perspective.
Given now that our penetration overall is 93% next year will be 90% of clients, having proximately Rx.
Probably.
A factor that will contribute to west contribution not more coming from upsell opportunity. We don't generally quantify the dollar value of it we always talk about that.
The revenue contribution incremental revenue comes mostly from new client adds second from upsell activity and third from from any organic sort of growth.
And next year will be no different but we don't frame of dollars, but simply to say overall it will be less of a contribution than it was in the past year.
As it relates to the overall not now is a continued active pipeline going into next year, it's higher than what it was a year ago.
Which is really positive again, we don't quantify sort of how much higher but I would say it's nicely higher.
And bodes well considering those generally are always the significant majority of early client wins in every year and.
It takes sort of any year that you look at they.
They usually represent roughly.
30% or so of sort of new client adds in a given year.
Thank you.
Thank you. Your next question is coming from David Larsen from <unk>. Your line is live.
Hi, congratulations on the good quarter can you talk about some of the ancillary services that you are getting into like family planning for example, or just maternity care like post birth, just any color there would be very helpful and any thoughts on the longer term revenue contribution that could come from those areas. Thank you.
Sure.
So we've talked about adding preconception services.
Maternity support postpartum.
Male infertility and menopause.
And utility was live this year.
The rest of those are will be alive, one one if you will.
Relative to contribution.
Most of the sales we had around those two because they were sort of announced throughout the year.
<unk> to existing clients, although we have some activity with new clients that was positive I think the biggest contribution will be next year's sales.
And then the revenue contribution coming from that will be in the following year.
That would be meaningful or more meaningful if you will versus what we expect in next year.
That's very helpful. Thank you and then a question that I keep getting asked from clients is you know what's the state of the economy, what's the risk of a potential slowdown here should the labor market is softening a little bit can you just maybe give some more color on that like in terms of your new client wins are they all rush.
The same size, who are more of those coming from sort of mid size smaller businesses or is it held pretty steady in terms of the size of the new client wins and then even if even if the labor market soften my let's call it one or 200 basis points.
And I'm kind of like so what your topline growth rate if it flows like one or 2%.
So why it's still so robust just any thoughts there would be very helpful. Thank you.
Sure.
If you're thinking about it the right way.
If you remember a year ago this time.
There was a lot of concern around.
Announcements that we're coming out of I call them the headline risk at the time.
Most of the tech companies, we're announcing layoffs.
Amount of actual layoffs or announcing versus versus their existing client base was was.
Single digit percentages collectively and we had talked about across all of the clients that we had.
The number of client announcements for layoffs was collectively at that time around 100000, or so lives and we framed it the way you're framing it which is in the Grand scheme of things.
And a year ago, I forgot exactly what our lives, where but let's call it around.
Three seven or something million.
But the home exactly to that number, but but either way it was.
Nothing relative to the overall population and we also talked about and and predicted that even with the layoffs that were announced whether they were announced like again, where the tech companies announced them. There were announcements that were reduction in force. They were announcements that were what we call right sizing where they were had some.
But they still grew overall a lot of the bigger tech companies that are our clients have already talked about that there. They are adding employees not not declining employees et cetera.
Even for companies that may have not made towards announcements. The net effect of it was was nonexistent from a reduction in lives perspective versus our prediction from the beginning of the year, we said that any reductions that were going to happen.
Even if we didn't know about them would be offset or more than offset by growth in organic lives and that sort of what's been materializing for us. So far this year. So I think you're thinking about it the right way.
Okay, great. Thanks, very much and just one last quick one quantum health why did you select them and not like say <unk> for example.
We have a lot of that we have a lot of alignment.
How.
Thinks about the market and how they go about.
How they go about their their value prop in their approach.
A significant number of had a significant number of.
Mutual clients already aligned and so thats always positive.
But then more broadly in general for us.
It's picking that it's having the right partners and continuing to have more channels and avenues for.
For employers to acquire and add the fertility benefit that's really what is most important to us and we'll continue to sort of evaluate that as we continue to look at our partnerships going forward.
Thanks, a lot I'll hop back into queue. Thank you.
Thank you that concludes the Q&A portion of the call I will now hand, the conference back to James Hart for closing remarks. Please go ahead.
Thank you everyone for joining us. This afternoon, please feel free to reach out at any time for any follow ups that you have hopefully you all know how to contact me otherwise just trying to investors that projects dot com. Thanks, So much when we look forward to speaking with you in the coming year.