Progyny, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Progeny, Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, John, and good afternoon, everyone. Welcome to our Fourth Quarter Conference Call. With me today are Pete Ineske, 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. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including but not limited to statements about our financial outlook for both the first quarter and full year of 2022, including our expected utilization rates and mix, the impact of COVID-19, including variants on our business, clients, member activity, and industry operations, our ability to acquire new clients and retain and upsell existing clients, our market opportunity, size, and expectation of long-term growth, our plans for the expansion of our business, including expansion into other markets and of other services offered, our business performance, industry outlook, strategy, future investments, plans and objectives, and other non-historical statements as further described in our press release that was issued this afternoon. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to progeny's growth, market opportunities, and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10Q. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, gross margin excluding stock-based compensation, and operating expenses excluding stock-based compensation. Reconciliations with most comparable gap measures are also available in the press release, which is available at investors.progeny.com. I would now like to turn the call over to Pete.

Thanks, Jamie. Thanks, everyone, for joining us today. Mark will walk you through the details of Q4 in the full year shortly, but before he does, I'll give you some high-level thoughts. In 2021, the company grew to record levels for both revenue, which grew 45% over 2020, and attained its highest levels of profitability with 13.5% adjusted EBITDA margins. We also maintained our nearly 100% retention rate among our existing clients, driven by our industry-leading clinical outcomes, which we achieved for the sixth year in a row, as well as our exceptional member and client satisfaction, which is evident in our best-ever NPS score of plus 81. On top of this, we had our most successful selling season ever, which is the most important driver to our long-term growth, by adding a record 85 new clients and 1.2 million new covered lives. We accomplished all of this despite the unexpected COVID-related waves that marginally disrupted member activity from time to time, including the most recent disruption due to Omicron at the end of the fourth quarter. When we issued our guidance here in early November, we've been experiencing increased utilization as September, October, and November all had strong sequential growth month over month. When the Omicron variant of COVID-19 emerged in early December and spread across the country faster than any other variant, Overall member activity slowed sharply enough that it had an impact on our results in the quarter that was beyond our ability to predict. To put that into perspective, we typically see in our guidance for Q4 contemplated a decline in member utilization from November to December due to the holidays and routine clinic closures. However, the decline we actually experienced in December due to Omicron was nearly twice what we were anticipating, resulting in a negative impact of revenue of approximately $9 million for the quarter. This Omicron-related impact on member activity continued into January as the variant continued to spread across the country and infection levels hit their peak. However, as the awareness grew that the variant was generally producing more mild illness, our members' mindset with respect to pursuing treatment improved. Based on the visibility we currently have, member activity for February and March, as well as the limited visibility we have into April, has rapidly recovered to normal levels, and the Omicron-related impact on member utilization appears to be behind us. One of the most important themes emerging from the last two years is that the substantial majority of fertility patients recognize the time-sensitive nature of their treatment and have continued to be highly resilient in the pursuit of care, even against the backdrop of the pandemic. This can be seen through the consistency in our quarterly utilization rates over the past two years. Additionally, unlike other areas of healthcare that may be significantly strained or altogether disrupted following a surge in COVID cases, the vast majority of fertility clinics aren't located in hospital settings. Clinics have had the resources they need to remain open and available to care for patients, even as COVID cases spike in parts of the country. And whenever COVID has more acutely impacted our member activity, whether it's been due to an increase in cases because of government recommendations related to shutdowns or reopenings, those effects have been both short-lasting and have only affected activity for a relatively small proportion of members overall. Although we can't control a global pandemic and its marginal impact on utilization, the important takeaway is that we are performing at the highest levels in the areas that we do impact. This includes the member experience with our benefit offering, our industry-leading clinical outcomes that are critical to that member experience, our high levels of client satisfaction, which are due to the value of our favorable outcomes generate, our client upsells and renewals, which further demonstrate client satisfaction, and our record levels of new business won. With the near 100% client retention that I previously mentioned, today we have more than 265 clients under commitment, reflecting 4 million covered lives, which are up more than 50% from a year ago. This reflects an approximately 3% share of the large self-insured employers in our target market, which doesn't yet include other types of employers, such as fully insured companies, school systems, unions, and governmental entities and agencies. Now, let's turn over to current sales momentum. While it's too soon to provide you with any detailed quantitative comments, since we're in the very early stages of our 2022 selling season, our sales momentum from 2021 is continuing into 2022. We're seeing meaningful increases across all metrics we use to monitor sales progress versus early selling season progress a year ago at this time. including our total active pipeline, our new pipeline development year-to-date, and year-to-date sales wins so far. This early selling season data gives us confidence that the macro trends driving demand for fertility benefits combined with our recognition as the leader in this space position us well to continue to sustain our momentum from last year's selling season into 2022. Given the caliber of the companies that we work with today or are engaging with in our current active pipeline, It's clear that Progeny has become the provider of choice for fertility solutions amongst the best known and most successful companies in the world. A key contributor to our sales success has been our high rate of member satisfaction. And in 2021, our NPS score increased to the highest it's ever been to plus 81. Given that most healthcare companies routinely score barely above zero or in negative digits, We are incredibly proud of this result, which indicates that our members continue to be extremely satisfied with the services we provide them and the results we achieve for them. This is the fourth consecutive year we've increased our MPS, which speaks to our ongoing focus to maintain or improve member-level services, even as we continue to rapidly expand the business. We ended 2021 with more than twice as many clients and covered lives as we had at the time of our IPO a little over two years ago. And over that period of time, our MPS, which is already at an industry-leading levels, increased by an additional 10 points. In January of 2022, we launched the Progeny Benefit to our largest ever cohort of new clients and covered logs. We have a proven track record of scaling the functions and resources that are needed each year in anticipation of the step function increase that we see in our business. And I'm pleased to report that this year's record client launches have been successful across the board. We begin 2022 in our strongest ever competitive position with a solution that is unparalleled. Nevertheless, we remain focused on developing and introducing new enhancements to our solution. This year, we're looking to increase the level of support that we provide to our male members, specifically addressing those issues affecting male infertility by expanding our service and adding new capabilities. This will provide us with an enhanced product for upsell in the future. When looking at the underlying causes of infertility, male factor infertility, meaning the male partner has an issue that has made conception more difficult, is diagnosed equally and as often as female factor is. And while a reproductive endocrinologist is often able to effectively treat the couple regardless of the underlying cause, in a select number of cases, a reproductive urologist, or RU, may be beneficial to properly diagnose and treat the issue for the male partner. Less than 20% of urologists in the country focus on reproductive health issues, and the carriers may not have this subset of providers or coverage of these services in their network. This lack of coverage creates a gap, which is the issue that Progeny is specifically addressing with this enhanced offering. Separately, we're also expanding our geographic footprint by building our solution to be offered in the Canadian market. This is a natural extension for us, given that many of our existing clients have employee populations there. Although the Canadian government provides universal healthcare to its citizens, Comprehensive fertility coverage is not included in that program. Additionally, the employer supplemental coverage for fertility is even further behind where the U.S. was when we launched our benefit in 2016. As a result, significant majority of Canadians have no coverage today and are forced to fund treatment on their own when they can afford to do so. Companies that do provide a fertility benefit under their supplemental health plans typically self-fund these plans in much the same way large employers sponsor health coverage here in the U.S. We have a clear opportunity to address this unmet need in Canada where we can help educate and drive awareness and ultimately help drive access to care similar to what we've been achieving here in the U.S. We've been leveraging our relationship in the industry to build a Canadian network of leading providers which we expect to manage in much the same way that we do our U.S. network, actively monitoring the patient experience, ensuring adherence to best practices, and measuring outcomes to ensure that our members are having healthier pregnancies and greater overall success in their family building journeys. We're excited about these new areas of focus and we'll update you on our progress in these areas, including timing for go-to-market on future calls. These aren't expected to have an impact on this selling season, but they should set us up nicely for future selling seasons beyond 2022. As the leading fertility benefits manager, we've developed a significant competitive advantage in the marketplace. One significant factor is that we already have the most comprehensive fertility data set in the industry, and that data set grows significantly each year. In 2021, we managed over 28,000 R cycles, up nearly 50% from the prior year. The scale at which we are growing R cycles continues to expand our insights, which then widens our competitive advantage because it deepens our understanding of the ways people are pursuing family building. As a result, Progeny is in a unique position to continue to advance its services to enhance the member experience while also delivering value to our clients. Let me now turn the call over to Mark and he'll walk you through the results in more detail.