Q3 2024 Progyny Inc Earnings Call
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Speaker Change: Good day and welcome to the Progeny Inc. Third Quarter Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, James Hart. James, the floor is yours.
James Hart: Thank you, Paul, and good afternoon everyone. Welcome to our third quarter conference call. With me today are Peter Anevski, CEO of Progeny, Michael Stermer, President, and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions.
James Hart: 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, and will include statements related to our financial outlook for both the fourth quarter and full year 2024, any assumptions and drivers underlying such guidance, including the impact of our fail season and client launches and our expected utilization rates and or mix.
James Hart: our anticipated number of clients and covered lives for 2025, 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 financial and operating information, which are forward-looking statements under the federal securities law.
James Hart: Actual results may differ materially from those contained in or implied by these forward-looking statements.
James Hart: due to risks and uncertainties associated with our business, as well as other important factors.
James Hart: For a discussion of the material risks, uncertainties, assumptions, and other important factors 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.
James Hart: 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.
Speaker Change: During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA mark 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.progeny.com. I would now like to turn the call over to Pete.
The End
Pete: Thank you, Jamie, and thank you, everyone, for joining us this afternoon. In the third quarter, continue to execute against the strategic objectives that we outlined for you at our recent Investor Day, laying the foundation that will enable us to accelerate growth while meeting the needs of our clients and members and creating long-term value for shareholders.
Pete: I'll expand on those areas shortly, but I want to begin with 3rd quarter member activity, which continued to unfold differently from historical patterns with respect to how members progressed through treatment. Consequently, our 3rd quarter results are below the ranges we set in August.
Pete: I understand this is disappointing. To help you better understand what we're seeing, what we're doing in response, and how we think about the business moving forward, we're going to walk you through several areas.
Pete: First, what's been different and unexpected with respect to the member activity in 2024? Second, how we're reflecting this variability in our guidance.
Pete: Third, why despite how the year has unfolded differently than expected, we firmly believe the business is not only fundamentally strong, but also uniquely positioned to expand upon our leadership role in a large and growing market.
Pete: I'll begin with member activity, which is actually two separate though related components. The first is the overall utilization rate, which captures the percentage of our 6.4 million members who have taken action to pursue care at a fertility clinic, which includes initial consultations.
Pete: during the given period. The second is the measure of consumption, which reflects the volume and types of services that the utilizing members have done also during the given period.
Pete: With respect to the utilization rate, we continue to see that members are pursuing care at levels that are consistent with historical patterns, and that has continued in 2024.
Pete: Third quarter utilization was 0.47%, both consistent with our expectations and equal to Q2's level.
Pete: In fact, 0.47% is not only within the historical range, it's towards the higher end of that range, emphasizing that not only are members pursuing care, they're doing so at levels that reflect a strong, sustained need for our solution.
Pete: Challenges with respect to forecasting our recent periods relate to the other component, consumption, as we've seen activity in Q3 that differs meaningfully from historical patterns.
Pete: Primarily, two aspects. First, the as people are taking slightly longer to which is the first step in the critical journey to the treatment stage itself.
Pete: The difference of even just a few days translates into lower overall consumption within a given period.
Pete: And second, once people are progressing, we're seeing them consume fewer average stimulation-related art cycles than we've historically seen, specifically for freeze-alls and egg freezing.
Pete: As this is a relatively new phenomenon during Q3, there isn't enough data to determine whether or not this is a new trend.
Pete: The activity we're seeing thus far in Q4 is the best evidence that it may not be a new trend as we're seeing modest growth in average stimulation-related ART cycles per utilizer as compared to Q3 in 2024.
Pete: In light of this seemingly contrasting data, we believe it's more instructive to look at the recent R-cycle consumption in comparison to longer periods. For example, the three-year growth we've seen in egg freezing is consistent with the long-term pattern over many years, even though the volume more recently has been more variable from year to year.
Pete: However, we're not factoring the improved levels of pacing in both utilization and art cycle consumption that we're presently seeing in our fourth quarter guidance.
Pete: Instead, given how this year has presented more variability than we could have anticipated, we believe it's prudent to guide with the expectation of a return to the unfavorable trend that we saw in Q3, even though that would be below the activity we're actually seeing right now.
Pete: While that reflects the what that we're seeing, the why side is inherently more difficult to understand.
Pete: Our PCAs are focused solely on member experience and success, supporting members through whatever their journeys entail based on their needs. And we help members navigate through every step of their unique journey, and we don't ask them to justify the time it takes for them to get through those steps.
Pete: That's because we're sensitive to factors that can affect a member's timing, whether it's medical options or life events that may impact that timing.
Pete: We've ruled out a few things that are not causing this unexpected pattern. First, we know members have at least as much, if not more, coverage and that they aren't maxing out of their benefit. And second, we also aren't seeing a backlog at clinics. Members are getting the appointments they want when they want them.
Pete: And despite the fluctuations we've seen this year, these don't in any way reflect upon the health and strength of our business and our ability to deliver for our members.
Pete: We've successfully supported tens of thousands of member journeys, delivering a better experience, achieving higher clinical success rates, and driving meaningful savings for our clients.
Pete: That's what ultimately creates value for our key constituencies, our clients, our providers, our members, and our shareholders. And we're more committed than ever to continuing to deliver against our strategic priorities in those areas.
Pete: In any year, the selling season is obviously one of the most important priorities and we're pleased with this year's results, which produced 1.1 million new lives from over 80 new client commitments.
Pete: This is our fourth straight year of adding over a million lives, demonstrating once again the importance of fertility, family building, and women's health solutions to employers and the differentiation of our solution.
Pete: This year's season is similar to past seasons in a number of important ways.
Pete: Our newest clients continue to select robust levels of coverage, offering an average of two or three smart cycles, affirming that employers aren't suddenly looking to offer a skinnier version of the benefit.
Pete: and we saw a mid-90% take rate for Progeny RX, affirming the better member experience and cost savings we deliver through our integrated solution.
Pete: Our wins represent a broad cross-section of nearly two dozen industries including energy, consumer goods, health care, media, financial services, automotive manufacturing, and software.
Pete: This continues our sector diversification and emphasizes how truly universal the need for our services is amongst all types of employers.
Pete: and lastly we continue to see a broad distribution by client size with our newest logos contributing anywhere from 1,000 to over 100,000 lives. In fact distribution of our newest clients by size is nearly identical to the base as it is today, highlighting the diversity of our opportunities in our room for ongoing growth.
Pete: A notable difference this year from past seasons is a slightly higher skew amongst our largest tier. As those groups tend to do the deepest assessments and diligence, this reaffirms our confidence in our competitive position.
Pete: You'll recall that we previously told you how commitments were pacing ahead of last year and the pipeline was strong overall. So we understand that you may be looking at the 1.1 million lives in the context of the 1.3 million we achieved a year ago.
Dr. Jailendra Singh, Dr. Jailendra Singh,
Pete: I'll remind you that last year's 1.3 million included approximately 300,000 lives without access to our medical benefit. So on a life-for-life basis, our new fully loaded lives are higher than last year.
The End.
When we spoke to you in August
Pete: There were a number of Jumbo opportunities in our pipeline, Jumbo reflecting our largest deals.
Pete: that gave us visibility to well over 1.3 million new lives as of August.
Pete: Of the jumbo opportunities that remained and made a decision, we won all of them. The ones who didn't come to a decision represent over 400,000 lives and remain open and active opportunities in our pipeline, though we aren't able to project whether or when a decision will be made.
Pete: This is no different than any sales year, where some portion of our prospects
end the sales year as a not now.
Pete: They may have had competing priorities to consider, or they just weren't in a position to make a final decision.
Pete: As we've seen in the past, we'll enter next year with a very healthy pipeline of advanced opportunities, which are in addition to the new pipeline generated through our traditional methods, including working with channel partners who play a key role in broadening our reach and improving our sales efficiency.
Pete: This year we made significant strides with expanding those channel partner relationships.
Pete: You'll recall how we signed our first regional health plan partner a year ago.
Pete: This year, we're extremely excited to have added our first national health plan, in addition to another large regional health plan and additional TPAs. And some of these groups are also becoming our clients, entrusting Progeny to serve their own employee populations.
Pete: This is an incredible testament to the demonstrable value we create. We couldn't be more proud of that and are excited to share more details as the partnerships grow.
Pete: As important as our new sales and new partnership activities are, our selling season also includes renewals and upsell activity. So let me give you some updates there as well.
Pete: As previously disclosed, a large client made a decision to exercise an option to conclude their services agreement with Progeny.
Pete: Every client's decision always requires introspection, and this was no different.
Pete: We also heard from the 99% of our clients who remain with Progeny into 2025, given the positive impacts we've made to both these clients as well as their workforce.
Pete: While retention is one validator to our service, so are upsells and expansions.
Pete: This year, we continue to see existing clients looking to deepen their project relationship with approximately 30% of clients increasing their program in some way in 2025.
Pete: Historically, that meant more smart cycles or adding progeny RX. While those still occur, upsells now include those clients who are adding our newest services in maternity, postpartum, and or menopause.
Pete: We're extremely pleased with the reception we've seen for these newest services in the first year we've offered them. Probably 20% of our existing clients and 40% of our newest clients are adopting one or more of these programs in 2025.
Pete: taken together, more than 1.5 million of our covered lives, or more than 20% of our base overall, will have at least one additional program beyond the corporate utility and family solution.
Pete: As 2025 will be our first year in market with these services.
Pete: We don't have a sense for what the usage patterns will be. We don't expect meaningful revenue contribution from these products next year. Nevertheless, the interest in adoption we've seen from our clients speaks to their willingness to entrust Progeny with even more aspects of their health programs.
Pete: With that, let me turn the call over to Mark to discuss the quarter in more detail and provide our expectations for the balance of the year. Mark. Thank you, Pete, and good afternoon, everyone. I'll begin with our third quarter results and then provide our expectations for the remainder of the year.
Pete: Third quarter revenue grew 2% over the prior year to $286.6 million. The growth was primarily due to the increase in clients and covered lives as compared to a year ago, which was then offset by the lesser rate of consumption overall that Pete described earlier.
Pete: So let me take a moment to walk you through this dynamic in greater detail.
Pete: Female utilization was 0.47% in the third quarter. This was a modest decrease, as we had told you to expect, from the near record 0.49% that we reported in the third quarter a year ago, but flat on a sequential basis from the 0.47% that we reported in August.
Pete: While utilization can vary modestly from period to period, it continues to be highly consistent with what we've seen for many years, reinforcing our belief that we aren't seeing some underlying change in either medical need, member demographics, or the desire for people to pursue family building.
Pete: The different pattern of consumption in Q3, that Pete was describing earlier, is reflected in reported art cycles.
Pete: Approximately 14,900 ART cycles were performed in the quarter, reflecting a decline of just under 1% from the year-ago period. So, while the rate of people pursuing care is consistent, the pattern of consumption is different, creating the challenge with respect to our forecast and guidance.
Pete: Today's press release includes a table on the last page to help you see how art cycles per unique female utilizer during the quarter diverged from past patterns.
Pete: We've historically seen an increase in ART cycles per unique utilizer over the course of any given year. However, this year, in a complete divergence from past patterns, we instead saw a decrease in Q3.
Pete: Thus far in Q4, even though we've seen an improved level of pacing in both utilization and consumption as compared to what we saw in Q3, we believe it's prudent to assume that another variance could occur.
Pete: The high end of our guidance assumes similar levels to what we saw in Q3, while the low end contemplates a further decrease.
I'll walk you through those impacts in a moment.
Pete: As of September 30th, we had 468 clients with at least 1,000 lives, representing an average of 6.4 million covered lives over the third quarter. This compares to 392 clients and an average of 5.4 million covered lives a year ago.
Pete: Covered lives increased nearly 50,000 versus June 30th, reflecting the last batch of client launches from last year's selling season, which was offset by a slight net reduction of lives from our existing clients during the quarter.
Thank you.
Pete: While we've continued to see the impact of workforce reductions at certain clients, others have grown.
Pete: which further highlights how important it is to have a diverse customer base.
that spans many different areas of our economy.
Pete: and why we are so pleased with the results of our most recent selling season given that our newest clients, once again, are coming from nearly two dozen industries.
Pete: Turning back to the components of the top line this quarter, medical and pharmacy revenue grew at essentially the same rate over the year ago period to $179 million and $108 million respectively.
Pete: As the penetration of Progeny RX will reach approximately 94% in 2025, the growth rates for medical and pharmacy revenue should continue to be more closely aligned on an annual basis moving forward.
Thank you.
Turning now to our margins and operating expenses.
Pete: Gross profit decreased 5% from the third quarter last year to $59.2 million, yielding a 20.7% gross margin, a 160 basis point decline from the prior year period,
Pete: due to investments made in our care management services as well as the impact of the unanticipated decline in cycles per utilizer in the quarter.
Pete: On a year-to-date basis, gross margin is more comparable to the first nine months of 2023, demonstrating the flexibility of our cost structure even when the top line unfolds differently than expected.
Pete: As we look over the remainder of the year, I'll remind you that we typically see a sequential decline in fourth quarter gross margin as we onboard the headcount that's needed to support the new lives starting on January 1st.
Pete: We expect a lesser impact than usual this year as we aren't onboarding as many new hires following the previously disclosed loss of a large client in 2025.
Pete: Sales and marketing expense was 5.7% of revenue in the third quarter comparable to the 5.3% in the year-ago period. As the investments to increase our go-to-market resources and channel partner relationships were somewhat offset by the leverage we've gained client acquisition and retention activities.
Pete: G&A costs were 10.6% of revenue this quarter, in line with the 10.5% in the year ago period. Though year to date, G&A is down 50 basis points as compared to the first nine months of 2023, reflecting the efficiencies that we continue to realize in our back office operations.
Thank you.
Pete: While our OPEX line items were comparable to the third quarter last year, adjusted EBITDA declined 7% to $46.5 million, and adjusted EBITDA margin declined 160 basis points to 16.2%, reflecting the impact of the lower gross margin.
Pete: Net income was $10.4 million or $0.11 per diluted share. This compared to net income of $15.9 million or $0.16 per share in the year-ago period.
Pete: The lower income in EPS as compared to a year ago reflects lower operating income as well as higher tax expense in the current period.
Pete: which was only partially offset by the reduction in shares outstanding following our buyback programs in 2024.
Thank you.
Pete: Turning now to our cash flow and balance sheet, operating cash flow during the quarter was $44.5 million, which compares to $54.2 million generated in the year ago period.
Pete: The change reflects the timing of certain favorable working capital items in the prior year period, as well as higher cash payments for income taxes in the current period.
Pete: Over the first nine months of the year, we've generated $127 million of operating cash flow, representing an 84% conversion of our adjusted EBITDA over the same period.
Pete: As of September 30th, we had total working capital of $338 million, reflecting over $235 million in cash, cash equivalents, and marketable securities, and no debt.
Thank you.
Pete: The decrease in our cash position versus June 30th reflects our stock repurchasing activity during the quarter. In the third quarter we repurchased 2.8 million shares for approximately $61.4 million.
Pete: Since launching the first program in February and including the activity in Q4, we've returned value to our shareholders through the repurchase of nearly 12.4 million shares overall.
Pete: This completes our previous authorizations and has reduced our shares outstanding as of the start of the year by 13%
Pete: Turning now to our expectations for the fourth quarter and full year 2024.
Pete: As you can see in the table in the back of today's press release, our range for the full year assumes utilization of 1.05% at the low end.
Pete: which assumes a slightly lower level of Q4 utilization than what we've seen thus far this year.
and 1.06% at the high end.
Pete: The low end of the range also assumes that ART cycles per unique utilizer declines in the fourth quarter as compared to Q3.
Pete: While the high end assumes consumption stays flat sequentially, even though, at this point in Q4, we've seen an improved level of pacing in both activity and treatment volume as compared to Q3.
Pete: I said before we believe it's prudent to assume yet another variance occurs and have contemplated the ranges accordingly.
Thank you.
Pete: With those assumptions, we expect revenue of $266.2 to $281.2 million for the fourth quarter. This translates to revenue of $1.135 billion to $1.150 billion over the full year.
Pete: Turning to our profitability, we expect adjusted EBITDA of $37.8 to $42.8 million in the fourth quarter, and net income of $6.1 to $9.5 million.
Pete: This equates to $0.07 and $0.10 earnings per diluted share, or $0.31 and $0.35 of adjusted EPS on the basis of approximately 91 million fully diluted shares.
Pete: For the year we now expect adjusted EBITDA of $189 to $194 million, along with net income of $49.9 to $53.3 million.
Pete: That equates to $0.52 and $0.56 earnings per diluted share, or $1.54 and $1.57 of adjusted EPS on the basis of approximately 96 million fully diluted shares.
Speaker Change: I'll remind you that our net income projections do not contemplate any discrete income tax items. I'd now like to turn the call back over to Pete for some closing remarks.
Pete: Thanks, Mark. I hope today's call has helped you understand how the business remains fundamentally strong and uniquely positioned to take advantage of our large and growing market opportunities, despite the headwinds that have impacted our recent results.
Speaker Change: As we look forward into 2025, consistent with our past practice, we expect to provide our financial guidance when we report year-end results in February.
Speaker Change: and we'll have insight into the clients launching on January 1st. At this point, even with the loss of the one large client, we expect to continue generating strong profitability and meaningful cash flow in 2025, which is a testament to the diversity of our business and the strength of our business model.
With that, we'll open up the call for your questions.
operator.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.
Speaker Change: Once again, please press star 1 on your phone at this time if you wish to ask a question and please hold while we pull for questions
Speaker Change: And the first question today is coming from Anne Samuel from JP Morgan and your line is live
Anne Samuel: Great, thank you. I was hoping maybe you could speak a little bit to how you get visibility or understanding into what's going on with your utilization and consumption. Are the PCAs perhaps able to offer any insight on trends from recurring conversations that they're having around what might be causing some of this disruption?
Speaker Change: So relative to understanding our utilization and consumption today, which is I think the
Anne Samuel: First part of your question, Annie, we look at contextualized data, so same point in the quarter in Q3 versus now.
Anne Samuel: And we look at both overall unique utilizers, i.e. utilization rate as compared to that time period. And then we look at the R-cycles per utilizer that are at that point scheduled versus what was scheduled in Q3.
Anne Samuel: relative to the PCAs as I mentioned it's their conversations are primarily around you know
Anne Samuel: the members' needs, the journey they're going on, helping them answer their questions, helping them schedule appointments, etc. They're not talking to them about any other type of activity relative to timing or anything else.
Anne Samuel: As you might imagine, there's roughly 30,000 unique utilizers in a given quarter, aggregating those conversations, even if they were happening, is not something that is realistic, but either way, they don't occur that way. The way I said it in the prepared remarks, they're just helping them get through and fulfilling their needs relative to what their current needs are.
Thank you.
Speaker Change: That's helpful, thanks. And just wondering, you know, maybe is the kind of the national conversation around fertility and the recent election, you know, maybe would you attribute some of the disruption that you've seen to that? I saw one of your competitors recently launched, you know, a faith-based fertility program, you know, are your members asking for anything like this? Do you think that, you know, that's factoring in at all?
Speaker Change: I haven't heard a request around the second part of your question in terms of faith-based programming or anything else like that from our members or PCAs hearing that.
Thank you.
Speaker Change: Oh, it's hard to say whether or not the election had any impact on utilization or not.
Speaker Change: did have fertility as part of the overall conversation. But as we said earlier, the good news is that on both sides of the aisle, they talked about protecting fertility.
Speaker Change: and so that's positive. So it's hard to know. We haven't heard of that or haven't heard anything around that in terms of it impacting it so I'd be guessing if I commented further.
Speaker Change: Great, thanks. And if I could just squeeze in one more, which is curious, now that you have a more, you know, kind of fulsome total women's health benefit, we've been hearing a lot from employers that, you know, they're looking for, you know, a really comprehensive benefit.
Speaker Change: you know, spanning all of women's health. Did that catalyze any of your conversations this year, maybe for the uptake of the core fertility benefit? And you know, did that enable you to get maybe more employers than you than you were anticipating?
Speaker Change: I will let Michael comment and then I'll add some comments if needed.
Michael Stermer: Yeah, so thanks for the question. So it definitely saw good, strong interest in our new products.
Speaker Change: which certainly helped contribute to a successful sales season this year. That goes from both a new logo prospect perspective
as well as
Speaker Change: as well as our existing book of business and adoption rates there.
I'm
and some additional colleagues.
Speaker Change: Yes, so the other color I would give is that if you look at RFP activity, there was a greater percent of RFPs that were looking for a fuller suite of solutions, even if they didn't buy them all.
Speaker Change: positive data point is that 40% of the new clients bought, you know, the additional products in addition to the fertility benefit. So I think overall it's supportive of the demand that you're talking about relative to more and more clients looking for a more fulsome solution.
Thank you.
Thank you.
Speaker Change: Thank you. The next question will be from Alan Lutz from Bank of America. Alan, your line is live.
Alan Lutz: Good afternoon and thanks for taking the questions. Mark, one for you. The gross margin was under a little bit of pressure this quarter and you called out care management services or investments in care management services. Can you talk about what exactly is driving the gross margin compression as it relates to that care management investment? And then as we shift to 2025, can you provide just
Alan Lutz: high-level commentary on what's going to drive the gross margin next year. I know you're dealing with a client loss, you have new offerings, there's these investments in care management that you're talking about, but how should we think about whether or not you can increase the gross margin into 2025? Thanks.
Speaker Change: Yeah, so as it relates to this quarter, we do, and we have in each year, begin to build our staff.
Speaker Change: in anticipation of the launches in the prior year, and we did that.
Speaker Change: in gross margin. The other is obviously the impact of the unexpected level of contribution from art cycle revenue, which, you know, was not planned for.
So,
Speaker Change: And then as it relates to, you know, balance of the year, we're obviously looking at moderating, and it was in my prepared comments, we're moderating the hiring in and around gross margins and the care management services teams that support them.
Speaker Change: although we will be, you know, growing next year so, you know, at least our
you know, from our prepared comments.
our membership will be growing next year.
Speaker Change: A little bit early, I think, to comment on exactly what we'll do in 2025. We typically give guidance for the year in February. We're in the middle of our budgeting processes right now, and as always, we'll be looking at all of our costs with a pretty close eye and planning for next year, given we now understand where our selling season's turned out.
Speaker Change: and, you know, how our retention season has also turned out.
Speaker Change: Great, and then one housekeeping question. 6.4 million members today, adding 1.1 million, that gets you to about 7.5 million, minus the disclosed client loss, gets us to about, I'll call it 6.3 million. That's a little bit of a delta versus the 6.7 that you called out. Is there any other, is there anything else to mention there, any other churn going on, or is it just sort of rounding? Thanks.
Speaker Change: Yeah, no, it's the, it's the, there's about a hundred thousand or so that actually went live this year, so they're already part of the 6.4 from the current selling season, so that's your, that's pretty much what your Delta is.
Perfect, thank you.
The End.
Speaker Change: Thank you. The next question will be from Sarah James from Cantor Fitzgerald. Sarah, your line is live.
Sarah James: Thank you. I'll continue on the lines of just checking these numbers. So if I had 80 clients to the current book, I get 548, not 530. So there's an 18-account delta there. Are any of those account losses? And if so, is there any commonality?
Speaker Change: Yeah, there's roughly, and again as they talked about them, the roughly 100,000 lives that went live already, I think there's roughly 10-12 new clients. And then overall in terms of losses, I think we had five losses overall.
and Mark Wilson. Thank you. Thank you.
Speaker Change: Okay, are you seeing demand in the market for plans that can offer a more moderated utilization trend and do you anticipate having an offering that can serve that type of client?
Speaker Change: I'm not sure if you could be more specific on what you're referring to relative...
to a moderated...
They're out there, but we don't believe in those.
in particular because
Speaker Change: You know, when a dollar maximum benefit, you run out of your money in the middle of treatment, literally.
Speaker Change: It's not a good experience if members then operate in a world where they're operating with economic scarcity in their mind and try and preserve dollars and therefore forego portions of treatments that have higher probability of success from a high birth rate, so it's not something we believe in as a good member experience.
but if you can clarify.
Speaker Change: If I'm thinking about something else, then I'm happy to answer the question.
Speaker Change: Sure, yeah, I was I was thinking about not just an employer that maybe wants to offer less cycles But one that maybe wants to make those cycles harder to access so technically offering but not really Having the level of utilization that you're used to
Yeah, I...
Speaker Change: I'm not sure sort of what type of benefit that is again. We wouldn't support that
Speaker Change: either you believe your employees need the benefit and you believe your...
Speaker Change: your network and your network management, the physicians in your network, you know, are making decisions for appropriate treatment, but to restrict access or sort of arbitrarily, I don't believe in, we don't believe in. We believe in the doctors in the network making the medical decisions necessary for appropriate treatment.
Thank you.
Great, thank you.
Speaker Change: Thank you. The next question will be from Michael Czerny from Learning Partners. Michael, your line is live.
Good evening and thanks for taking the question.
Speaker Change: Maybe if I can dive into a little bit of the maternity and menopause services you talked about for 25, again, not trying to get
Speaker Change: to guidance in any way, shape, or form at this point in time. But as you think about the materiality of those businesses...
for next year against your 28 targets, which I...
Speaker Change: I recall we're about for $200 million of run rate revenue by then.
Speaker Change: How is the sell-through on the new products that you expected tracking and is there any way we should think about...
Speaker Change: qualitatively how they should ramp at the start and then over the course of the year.
Speaker Change: The sell-through, I think, was positive relative to our, you know, first year in market expectation.
Speaker Change: you know, having now launching, you know, being live with the 1.4, 1.5 million.
lives across
Speaker Change: The number of clients that we talked about, both new and existing, I think is really positive.
for joining us.
Speaker Change: The take rate, if you will, the awareness that we create across those members that are at those employers will be what will be the progress that we'll see over not just the next year but over the next couple of years.
Speaker Change: Got it. And I know the international acquisition you made was a small deal, but how do we see that flowing through into the model? Is there anything else you can give us financially on that in terms of, are there lives covered that are part of your recent ads? Is there anything, I know it was tiny, but how are you thinking about the growth characteristics and the potential for contribution on that business?
Speaker Change: It's more of an opportunity for us relative to employers that are multinational employers that are looking to do something with their global employees in addition to doing something with their U.S. employees.
Speaker Change: It's a recent investment, as you said, and a continued investment relative to having an offering, not just in the fertility and family building space, but beyond that, even for global. But at this point, I don't think there were lives...
Speaker Change: We did not attribute lives to global populations in the reported numbers.
Speaker Change: Given the recent timing of the acquisition, it's probably more of an opportunity for us for the 2025 selling season.
Helpful, Pete. Thanks so much.
Speaker Change: Thank you. The next question will be from Glenn Santangelo from Jefferies. Glenn, your line is live.
Glenn Santangelo: Thanks for taking my questions. Hey, Pete, just a few quick ones for you. You know, I was wondering if you could just give us some sort of qualitative commentary on the selling season in terms of what you're seeing across the competitive landscape, because it certainly seems like your competitors, Maven and Carrot, are certainly starting to get more aggressive. And, you know, we've been starting to get questions around additional renewals you may have coming up, because...
Glenn Santangelo: You know, you obviously signed a lot of those clients back several years ago when maybe the competitive landscape was less intense, and so I'm just kind of, any sort of qualitative commentary in terms of what you're seeing out there would be helpful. And then I just had a quick financial follow-up.
Speaker Change: Yep, I'll take the second part first and then I'll have Michael comment on the selling season competitive environment.
As it relates to renewals...
Speaker Change: As you might imagine, our base of clients has been growing over years.
So every year we have...
Speaker Change: a significant amount of renewals coming up each and every year, right? They're three-year, generally three-year terms.
And as I mentioned in the previous question,
Speaker Change: five clients, notwithstanding the large one that we announced, you know, this past renewal season. So from a renewal perspective, we still maintain 99% of our client base.
Thank you.
Speaker Change: Yeah, so just overall, you know, we've been operating in that competitive environment as you referenced here for
Speaker Change: so for at least a couple years from sort of the sort of VC, you know, privately held companies.
And then, of course, we've operated...
Speaker Change: from a health plan perspective, you know, we really, you know, compete with them on on each and every sale. Sort of from from both perspectives...
particularly when you look at our new sales this year.
Speaker Change: We saw consistent win rates against those competitors, especially, or I should say including, those jumbo clients that Pete referenced earlier.
those are some of the most competitive bids.
Speaker Change: about our position in there. And then as it relates to the health plans, again, that's an area that we've been competing for a number of years. And as we referenced earlier, starting to add on some of those health plans, sort of shifting them from competitors to partners, also we view as a positive competitive side.
Thank you.
Speaker Change: Okay, awesome. Maybe if I could just quickly follow up on the membership question. I mean, Pete, it looks like your membership's going to be up, you know, 3.5%, 4% on a sequential basis going into 2025. And I appreciate you don't want to give any guidance around fiscal 25 at this point, but like, you know, given where utilization rates trended in fiscal 24, you know, it's hard to imagine maybe to get much more. So is it reasonable for us to at least be thinking about the company generating revenue growth in fiscal 25? Is that a fair assessment?
of
Speaker Change: It's a fair assessment. Certainly we've always talked about looking at lives relative to directional...
Speaker Change: growth for the company. That said, given, you know, A, the variability we've seen this year, plus having no visibility into the new clients and what their utilization might be, including, you know, what we talked about already relative to what we're seeing for Q4, but didn't guide to, I think it's prudent for us to withhold any sort of definitive comments for 25 at this point.
Okay, thank you.
Speaker Change: Thank you. The next question will be from Jalandhra Singh from Truist Securities. Jalandhra, your line is live.
Jalandhra Singh: Thank you, and thanks for taking my questions. I want to go back to the issue of less consumption in Q3. First, I want to confirm, this is the same issue you guys called out for missed and guidance cut on Q2 call, or are there any differences in trends or behaviors you're seeing, or just the same trend getting worse in Q3? And related to that, the recovery you're seeing in consumption Q4 thus far, are you able to somehow figure out if this is pickup from members who started engaging in Q2 or Q3, or these are new members who are driving faster consumption? Just trying to understand if there's any structural change driving the timing lag between utilization and consumption.
Speaker Change: So the first part of your question, what we saw in Q2, if you recall, was the increase in utilization
Speaker Change: R-cycles per utilizer that you would normally see sequentially from Q1 to Q2, we didn't see as big of an increase.
Speaker Change: The difference in Q3 is we now have seen a decline which we've never seen before.
Speaker Change: So that's the most stark difference relative to Q3 and what we saw there versus what we saw in Q2, which is the.
slower rate of growth.
as it relates to the members in Q4 so far.
Speaker Change: They're across the board, new and those that have already begun their journey and as we had commented for Q3, what impacted the R-Cycles for Utilizers, that journey getting slightly elongated and so by definition it's going to get elongated into Q4 as opposed to having ended up in Q3 for a portion of those members.
Thank you.
Okay, that's helpful. And then my follow-up...
Speaker Change: Given all the volatility you have seen in results in 2024 around utilization and consumption, Pete, what are your thoughts on, you know, business models where you have exposure to member utilization like today versus having a model which is much lighter and administrative in nature while still adding value to clients through member engagement services? Are you open to having such arrangements with employers given the recent developments?
Speaker Change: The short answer is yes, but beyond thinking about it, there's not anything that we've done with clients at this point. But we are thinking about different ways to mitigate, you know, utilization variability, but not much more to talk about at this point.
Great, thanks a lot.
Speaker Change: Thank you. The next question will be from Stephanie Davis from Barclays. Stephanie, your line is live.
Stephanie Davis: Hey guys, thank you for taking my question. We have seen just such a prolonged period of atypical mix and utilization and consumption. I kind of want to pull it on the same thread that Jalinder was.
Stephanie Davis: Have you talked to any of your clinic partners to see if this is reflective of any broader trends such as new tech or or higher incidence?
of PGT testing that's improving the efficacy of transfers.
Stephanie Davis: or potentially GLP-1s having some impact, like PCOS and driving improved fertility. Because this is, I mean, it's too early to call it a trend, but it's been a few quarters.
Thank you.
trends in consult to treatment.
Timing,
Stephanie Davis: A few of the clinics have observed the same thing, especially on the West Coast, and also have observed
later utilization of egg freezing benefits.
and we're also seeing some of that.
Stephanie Davis: But, again, in Q4, we're seeing a reversal of that, if you will, or at least the beginning of a reversal versus what we saw in Q3, which is why, in my remarks, I talked about it's too early to call it a trend, and it's more of a short-term trend.
Stephanie Davis: phenomenon, I'll call it, which right now we're not guiding differently to, but we are seeing, you know, the beginning of a reversal, if you will, relative to overall R-cycles per utilizer, and within that, you know, related to my comment now, within that, on the egg freezing side particularly.
Speaker Change: Now I have a follow-up from Mark and you're kind of going to hate this question so I just want to keep that in mind. But given some of the lessons learned from guidance this past year, are you thinking of maybe taking a more conservative approach to guidance as we look at 2025 or how are you changing your philosophy?
Well, look, I think we've certainly...
Speaker Change: learned lessons throughout 2024, but really they're about the variability that's happening within the business itself. And so, what we're doing here this quarter.
Speaker Change: is incorporating a greater emphasis on the variability that we're seeing and a little bit less reliance.
Speaker Change: on, you know, the most current data point to drive where we think those ranges should be set. And so that's our, you know, that's the philosophy that we're going with right now.
All right, thank you much.
Speaker Change: Thank you. The next question will be from Scott Schoenhaus from KeyBank. Scott, your line is live.
Scott Schoenhaus: Thanks team for taking my question. I just wanted to kind of dig into the selling season more. So the 6.7 million lives that you stated for next year
Scott Schoenhaus: The 1.1 you added this year. I just want to make sure the 300,000 federal that were added
Scott Schoenhaus: this past year. Those are still consulting only. They're not full ART cycles.
Speaker Change: And then I wanted to ask about the 1.1 lives added for next year. Can you give us any color on where the distribution, what kind of industries, is it broad-based or is it, you know, is it more in the middle of the country? Like you kind of referenced last selling season, you were doing, making more progress towards the middle of the country.
Speaker Change: Any more color there on the cohort of this new new client added?
Speaker Change: Sure, I'll comment and then Michael will add anything. Regarding your first question, yes, the 300,000 lives are still... don't include the full benefit. So they're the same as what they were this year.
Speaker Change: So this is the easiest way to describe it. As it relates to distribution on new sales, we're going to do industry question first, they're across a couple dozen industries I listed a bunch of them in the prepared remarks.
Speaker Change: and they're also, from a size distribution perspective, they almost reflect our existing book of business in terms of distribution, small to big, relative to size distribution, if that's what you're referring to in terms of distribution.
Speaker Change: Yeah, yeah, I mean very similar makeup to prior years from from a demographic and distribution of industry Perspective as well as this being said from a size Perspective as was referenced in the comments You know, we we did have a nice season with with the jumbos this year And you know outside of that again nothing nothing different necessarily from a makeup of the sales season
Speaker Change: And the next question will be from Richard Close from Canaccord Genuity. Richard, your line is live.
Richard Close: Yes, thanks for the questions. Congratulations on the selling season. Just on the losses that you talked about and then there's the large client as well, is there anything, any similarities or commonalities in those losses that you've gleaned in looking back at those?
Speaker Change: The short answer is no, again there were only five, including the large one that we announced.
and there's sort of no compilaties.
Speaker Change: Okay, great. That's good to hear. And then with respect to the health plans and the success there, obviously, that's relatively new, beginning, I guess, what, last second half of last year.
Speaker Change: and then now a national and another regional. As you think about how...
Speaker Change: you know, bringing those customers on, is there any difference versus employers in terms of, you know, maybe utilization or consumption in those populations, or is it just too early to tell?
Speaker Change: Yeah, so just to clarify the sort of difference in unique partnerships there, so when we talk about the health plans, they really function more as partners as we go to market versus sort of a utilization the way we would think about clients.
Speaker Change: then within those partnerships from the health plan side, again, similar to other partners that we have.
Speaker Change: today, you know, we'll bring employers on sort of through that partnership and then we've seen then utilization of those employers again function similarly to how whether an employer comes on direct or through a partner the utilization of those we haven't seen differences in depending on how they contract with us.
and Dan Gabrielli.
Dan Gabrielli: and then, you know, we had made a comment that some of them trusted us with their employees as well as a client in-house account, that's just normal utilization, normal onboarding for employees, no different than any other client.
Speaker Change: Okay, the next question will be from David Larson from BTIG. David, your line is live.
David Larson: Hi, when I was at the health conference recently, I heard from a couple of your competitors, you know, KindBody, Maven, and also Carrot.
David Larson: A couple of the things, broadly speaking, that I was hearing were things like maybe a company wants a $10,000 or a $20,000 or a $30,000 max sort of benefit.
Speaker Change: which I think maybe you would describe as being low. I think the way you described it, Peter, was $1 max benefit or something like that.
Speaker Change: I mean, do you have a product or a program that can accommodate something like that and then maybe, you know, however you want to describe it, upsell them or grow the product over time?
Speaker Change: just any thoughts there would be helpful because you know that the mix it seems to me like you're winning more blue-collar accounts so they have less money to spend so they'll buy fewer IVF cycles which is basically explains your consumption challenge just any thoughts there would be very helpful thank you very much
Speaker Change: Yeah let me clarify that. So I'm not sure what you're referring to in terms of blue-collar accounts.
Speaker Change: The clients we're winning are adopting the benefit the same way they've been adopting it.
Speaker Change: two-cycle, three-cycle benefit. They're full treatment bundles. They're full cycles. They're not.
Speaker Change: limited by an arbitrary dollar constraint. So when I refer to a dollar maximum benefit, regardless of the amount you pick...
Speaker Change: you're limited, the person is limited in their lifetime with their employer as to how much actual dollars they can spend against the benefit. So when a company and a vendor offers a $10,000 maximum benefit
They're not even offering enough money for one actual treatment.
for IVF.
Not even close, right?
whether they offer a $20,000 maximum benefit.
Speaker Change: They're not offering enough statistically to have a baby for most people because national live birth rates are below 50% and a cycle with the drugs is going to be in the 20,000 plus range. So mathematically, you're not going to get there, right? And so the clients that are buying our benefit understand that an arbitrary dollar maximum
Speaker Change: is an inequitable benefit and because around the country, especially if you're a national employer, reimbursement rates vary dramatically. And so certain people in the middle of the country where reimbursement rates are lower are gonna have more attempts under a dollar maximum benefit than.
Speaker Change: employees that you might have on the east and west coast where reimbursement rates on average are higher. But either way, a dollar maximum benefit drives, as I said before,
Speaker Change: different behavior by the patient in the doctor's office and they're making decisions for treatment. And those decisions are made from a position of economic scarcity.
Speaker Change: where they're trying to preserve dollars and therefore select things that otherwise would help them achieve success.
Speaker Change: and so the up-sell concept is a good one but we have an offering and the offering is, if you want to do a one-cycle benefit, you could do it, but having a dollar maximum, we believe it's not the right way to do it.
Speaker Change: Thank you. That does conclude today's Q&A. I'll now hand the call back to James Hart for closing remarks.
James Hart: Thanks Paul and thanks everyone for joining us this afternoon. We hope you found this informative, but feel free to reach out to me at any time for any follow-ups and otherwise we look forward to speaking to you at the start of the new year.
Speaker Change: Thank you. This does conclude today's conference call. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.