Progyny, Inc.

Good day, ladies and gentlemen, and welcome to the Progeny, Inc. First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode, and the floor will be open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. The floor is yours.

Thank you, John, and good afternoon, everyone. Welcome to our First Quarter Conference Call. With me today are Pete Inefsky, 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 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 second quarter and full year 2023 and the assumptions and drivers underlying such guidance, the demand for our solutions, our expectations for our selling season for 2024 launches, anticipated employment levels of our clients and the industries that we serve, the timing of our client decisions, our expected utilization rates and mix, 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. 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 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. 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 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.progeny.com. I would now like to turn the call over to Pete.

Thanks, Jamie. Thanks, everyone, for joining us today. We're pleased to report that we've had a very solid start to the year, as well as another strong quarter. we achieved record quarterly revenue with growth of 50% over the first quarter of 2022. This growth was driven once again by the healthy demand that we continue to see for fertility and family building care as our members look to start or expand their families, as well as an increase in our clients and covered lives following a record sales season in 2022. During the quarter, we also increased our margins as compared to the first quarter a year ago, as our continued focus on operational excellence produced not only our highest ever quarterly gross profit and adjusted EBITDA, we also achieved our best first quarter cash flow as well. We also successfully onboarded a record number of new clients during the quarter, further demonstrating that even as we rapidly expand our member base, we're able to effectively scale the business while continuing to provide industry-leading service levels. Simply said, we believe our year has begun with clear and positive momentum across all the key areas that we look to in measuring our success, including sales momentum early in the 2023 selling season. And we're particularly pleased to be executing against our strategic priorities at this time, as we believe awareness of both the challenges of infertility and the need for equitable, high-quality coverage has never been more top of mind. In fact, the most recent data released just last month from the World Health Organization revealed that the prevalence of infertility is continuing to increase, now affecting one out of every six people of reproductive age globally. To put that in perspective, less than four years ago, when we became a public company, the prevalence of infertility was reported as one in eight. We believe this increase over such a short period of time only underscores the powerful trends driving the growing need for fertility services. And while there are many factors driving this increasing prevalence, the growing number of people who are choosing to defer family building until later in life when natural conception becomes biologically more challenging is one of the most significant ones. Despite the long recognition of infertility as a disease, by all the relevant public health authorities, it continues to be covered differently or not covered at all as compared to the other conditions recognized by those same authorities such as diabetes, asthma, cancer, and others. And once again, employers are leading the way by adding this important coverage to their employees. This clear need coupled with advances in both technology as well as the models of care delivery for infertility have progressed to effectively meet the market's need for proven viable solutions. And despite that, the majority of those in need continue to face insufficient coverage. We continue to partner with an increasing number of employers across the country to make infertility treatment available to those that need it, working closely with clients, consultants, and industry groups to make coverage for infertility an essential benefit. While we know how impactful comprehensive care is to the individual who needs it, it's equally true that society as a whole benefits as the challenges of global population decline become better understood and appreciated. While national birth rates are declining in the U.S., that's entirely driven by women under 34, birth rates for women over 35 are increasing more than 2% a year compounded supported by the greater access to care and advances in assisted reproduction. The Prodigy solution has been making a profound impact as the prevalence of infertility has grown. In just the past four years, we've helped improve access via a nearly five-fold increase in our client base. And while a lot of healthcare companies have aspired to deliver value-based care, we're actually fulfilling its promise for our clients each and every day. And we're doing this through a combination of superior clinical outcomes, which produce an average of 25% to 30% savings, including controlling for unit cost inflation, where companies have grown accustomed to annual increases, but not with progeny. Over the past two years, we've more than doubled client and member base and are providing the clinics in our network with significantly more patient volume. And by leveraging this growing scale, we've been able to negotiate more favorable rates passing along to our clients a shared percentage of unit price savings for 2023. But beyond this greater economic value, our impact is felt in other ways by employers who, in choosing us as the fertility solution, are ensuring that their workforce is getting access to the most supportive and comprehensive care available. The impact is also felt by employees as well who are able to build their families through our solution that has shown through our comprehensive reporting to be the most effective at supporting successful family building through infertility care with an increase in faster, healthier pregnancies and healthier babies. And it's because of this growing need and our proven impact that we continue to believe that our 5.4 million covered lives today represent a mere fraction of our true market opportunity. Although this 2023 selling season is just getting underway, We're very pleased with the level of activity we've seen thus far, which continues to confirm that there is still a significant unmet need in the market, as well as a growing recognition of the importance of coverage across industries, geographies, and company sizes. And that's because even though companies are being more cost-conscious during this macroeconomic time, adding family building remains a priority. The activity we're seeing across all of our sales channels is favorable when compared to the level of activity we saw at this time last year, which became a record sales season for us. We're also actively engaging with not-now prospects from prior selling seasons. As usual, these represent the majority of the early commitments we've received for 2024 thus far and are just one indicator of the positive demand we're seeing in the market. Although it's early in the season, these wins are from well-known brands in such diverse areas as travel and hospitality, manufacturing, consumer packaged goods, and a large university school system. We're also seeing further success in early wins with Taft-Hartley labor populations, which when added to our original addressable market of large self-insured employers, expands our overall TAM to approximately 100 million lives, the majority of which continue to be uncovered and underserved. Last year was our first year in market, where we directly targeted and invested in our solution for these labor populations. And we're pleased to see our momentum there is continuing. And in a further demonstration of what we call our flywheel effect, where after winning our initial client in an industry, when we see others in that same industry look to maintain health benefit parity by adding the benefit, we had early wins from another hospitality client, as well as one of the largest children's hospital systems in the country, which continues our strong track record of recent success with that particular subsector of healthcare. On our last call with you, we discussed how Children's Hospital Association has selected Progeny to be the preferred solution to the more than 220 member hospitals in its coalition, representing two plus million covered lives collectively. While CHA affiliated hospitals can choose whether or not to consider us, CHA's approval of us along with all the work they did to vet our solution and processes, carries significant weight. Last quarter, we told you CHA wasn't the only relationship we were pursuing, and we recently announced that Progeny has been chosen to be the preferred fertility and family building solution for the family path suite of services within Evernorth. Evernorth, which includes companies such as ESI, Accredo, and others, was formed to help accelerate the delivery of innovative and flexible solutions across various aspects of healthcare, including fertility. And under this focus, Family Path was created to be the fertility solution within that portfolio of high-performing growth services. This partnership is particularly important because of the depth of experience Evernorth has in the fertility space through both Family Path and Freedom Fertility, and their focus in this space has allowed Evernorth to become familiar with progeny's differentiation and understand firsthand the impact we can have on their employer population. Accordingly, we couldn't be more pleased that Evernorth made the decision to enhance its Family Path suite of services by including Progeny as the preferred facility and family building provider within their solution. Similar to our other non-traditional channel partners, most notably our partnership with CVS Point Solutions, their decision to work with Progeny came out of a comprehensive review of Progeny's clinical approach, outcomes, plan design, security, privacy standards, and brand. And while this relationship has the benefit of expanding our go-to-market activities, it also streamlines the contracting and onboarding process for our mutual clients, including those who are looking to add a fertility benefit for the first time. Taken together, we believe these positive indicators, which include the size and health of our current active pipeline the active engagement and forward progress with the not nows, and the number and diversity of the early commitments further demonstrates both the strong demand in the market as well as our leading position as a provider of choice for fertility and family building solutions. In every sales year, we aim to grow the absolute number of new clients and covered lives as compared to the prior year, and this year is no different. Although it remains very early, given the strength we are seeing in the sales season thus far, we believe we're on track to meet that objective. To conclude, we're very pleased with our results this quarter, which we believe demonstrate that we have continued to execute against all of our strategic initiatives. And the early momentum we're seeing in our sales season supports our belief that progeny is in its strongest ever competitive position, that our market opportunity remains largely unpenetrated, and that all of the macro factors that have contributed to our growth remain intact.