Progyny, Inc.

Good day, everyone, and welcome to the Progeny, Inc. Second 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 Second 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 third 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 client decisions, our expected utilization rates and mix, 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 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 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-gap financial measures, such as adjusted EBITDA and adjusted EBITDA margin on incremental revenue. More information about these non-gap financial measures, including reconciliations with the most comparable gap 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 this afternoon. We're pleased to report that Progeny had a very solid second quarter. highlighted by record quarterly revenue of $279 million or 43% growth over the second quarter of 2022. The strength in this quarter's result reflect that member activity continues to be healthy, further affirming not only the essential nature of fertility care, but also the strong desire amongst members to pursue the appropriate medical treatments they need in order to realize their family building goals. In addition to the strong top line performance, Our continued focus on operational excellence also produced our highest ever quarterly adjusted EBITDA and quarterly cash flow as well. In short, we've entered the second half of the year with positive momentum across all the areas we look to when measuring our progress. In addition to our strong financial performance, we continue to deliver to our customers the benefits of value-based care because of our clinical outcomes and member experience. And lastly, based on what we're experiencing in our current selling season to date, we're continuing to see higher employer demand for fertility and family building solutions. Last month, the CDC released its annual outcomes data on the fertility industry in the U.S., reflecting treatments completed through the end of 21. For the seventh straight year, Progeny has significantly outperformed the national averages across every relevant benchmark for success. As a reminder, Progeny is the only solution that is doing comprehensive outcomes reporting, reflecting virtually every treatment for every member across all relevant metrics. You'll see these results reported in our second quarter 10 kit. Since launching our solution in 2016, we've consistently achieved higher pregnancy rates, higher live birth rates, lower rates of miscarriages, and significantly fewer multiple births. Our superior clinical results not only create a better member experience as they ensure members avoid unnecessary treatments and painful complications. They also drive cost containment for our clients, given that progeny members, on average, require fewer treatments in order to get to the desired outcome of a healthy baby. A closer look at the data highlights a key measure of how we deliver this value to clients. An IVF journey entails two procedures, a retrieval followed by a transfer. the retrieval portion, and the related medication represent a substantial majority of the overall cost for IVF. It's also much more physically grueling for the patient than the transfer is, so it's desirable to get to a live birth with as few retrievals as possible. While our live birth rate is 27% than national averages, more importantly, our average number of retrievals per live birth is now 36% better than national averages. This means that the average progeny member needs only 2.2 retrievals to achieve live birth versus the national average of 3.5. That's a difference of more than one full retrieval, which represents a substantial avoidance of cost for our clients, as well as significantly less physical and emotional stress on the patient. While other fertility solutions may continue to employ blunt utilization management techniques in an attempt to contain costs, we actively manage the benefit across our network leveraging our vast data set to deliver the most efficient clinical pathways for our members and demonstrated cost containment, which controls the client's expense, where it has the largest impact while still delivering the best member experience in the form of the most favorable clinical outcomes. Turning now to the demand we're seeing in the market, the factors helping support our momentum are being noted in the latest research from health authorities and the benefit consultants. On last quarter's call, we reviewed the World Health Organization's latest research which revealed an increase in the prevalence of infertility from one in eight just a few years ago to one out of every six people of reproductive age today. While there are a number of factors driving this, the societal trend of pursuing family building until later in life, when conception becomes biologically more difficult, plays a significant role. Turning back to the latest CDC data for a moment, Our cycles have not only continued to grow at a compounded annual growth rate of 10.5% over the last decade, but volumes are actually accelerating to a compounded annual growth rate of 11.8% over the past two years alone. This growth has occurred despite the impact of the pandemic, which significantly suppressed utilization in nearly every other healthcare category. Looking at this data another way, in just one year, the percentage of babies conceived through assisted reproductive technologies increased from 2% to 2.3% in the most recent period, which represents the largest year-over-year increase ever. We believe this is driven by the increased incidence and prevalence of the condition, as reported by the WHO, as well as continued adoption of fertility benefits by more and more employers. though adoption is still well behind where it needs to be when taking into account the latest incidents and prevalence data reported by the WHO and CDC. While any coverage is helping to increase access, we're also seeing more employers looking to eliminate health disparities through comprehensive and equitable coverage, such as our solution. In fact, according to Mercer, nearly two-thirds of large employers report they're planning to make enhancements to their health and well-being coverage in 2024. Of the other one-third, nearly all reported that they had already made those enhancements within the last two years. Their study also reveals that 78% of large employers said they're looking to improve the health equity in their plans, including initiatives to support diversity, equity, and inclusion. This continues to be yet another tailwind for us, as the project benefit was specifically designed to provide equitable coverage for all types of journeys to parenthood, and our focus on providing culturally competent care throughout the member journey makes our solution all the more relevant to employers. This data reveals that the macro trends that have been driving our growth remain fully intact and illustrate why we see higher employer demand for fertility and family building solutions in our current sales season. As at every sales season, our priorities are to expand our market share by adding new clients to retain existing clients who are in their renewal year, and to grow our relationship with clients through expansions and upsells. I'll spend just a moment in each of these areas to help you understand our progress. First, new client acquisitions have always represented the largest contribution to our year-over-year growth. In every season, we see opportunities to grow by taking existing market share, by winning clients who already have a fertility benefit, most often through their managed health plan, and also to expand the market with clients who are adding fertility coverage to their health plan for the first time. Over the last two selling seasons, our success has been equally divided across both groups as our solution appeals to both types of buyers. There's over 8,000 large self-insured employers in the United States, and as of today, we have less than 5% of those as clients. So we're in the very earliest stages of addressing the market, and we continue to see significant opportunities for ongoing expansion. We're now in the heart of our selling season, and our pipeline continues to be favorable relative to where we were at this time last year. We're also continuing to add to our pipeline as companies each follow their own timetable in evaluating new benefits. Also at this point in the season, we've already received a healthy number of early commitments, which, as in past seasons, have come from a broad section a broad cross-section of industries. These include leading brands in manufacturing, healthcare, financial services, automotive, and professional services, to name just a few. And even though this is just our first full year of targeting tapped Hartley groups, we're also seeing strong demand as well as early commitments from labor union populations. Thus far, these early commitments are choosing comparable levels of coverage to what we've seen in the past seasons, and we're also continuing to see a high take rate on Progeny Rx, both of which indicate that buyers are fully committing to their coverage. While early commitments are one indicator of demand, we expect the majority of client decisions will come in the September-October timeframe, as that's when most companies are finalizing their benefit decisions ahead of their open enrollment activities in the fall. In any selling season, our goal is to grow the absolute number of new clients and covered lives over what we've achieved in the prior season. And with the results we've achieved so far, we're pleased with where we are and believe we're on pace to meet this objective once again. With respect to renewals, the early activity thus far has been consistent with our typical high retention rate, and upsell activity is positive. This includes services like Positive ERX, as well as expanded coverage through additional smart cycles or other services like surrogacy and adoption. We also made progress in expanding our solution with our services that our clients and members would expect to receive from us, particularly ones that leverage our experience in cultivating networks of specialized providers, increasing access to care, managing the patient experience to improve outcomes, and providing concierge experience. For example, we continue to enhance our male infertility solution, which launched earlier this year, and we're pleased to release our next service expansion to address menopause, which is one of the least addressed and understood conditions in women's health, but one that is increasingly becoming a priority for employers. The Mercer study I mentioned earlier reported that menopause had the fastest growing support amongst employers with a more than threefold increase in companies looking to expand their coverage for 2024. And it makes sense for this to become a high priority given that more than 40% of women in the workforce today are over the age of 45 and more than 1 million women in the workforce experience menopause symptoms annually, incurring billions of dollars lost in productivity and direct medical costs, according to the Mayo Clinic. While menopause coverage is broadly available through the health plan, this is an area that's been underinvested in historically, as most OB-GYNs and primary care providers aren't receiving the necessary training to recognize and effectively treat its symptoms. This unfortunately leaves many women unsupported as they look for solutions. We're excited to help address this by creating a network of specialized providers of menopause care with Midi Health and GENEV, the premier virtual platforms in this field, as our first partners in this area. For an additional nominal fee, progeny clients can provide their employees with access to convenient, personalized treatment that addresses nutrition, mental health, and hormonal health. which builds on the comprehensive concierge support our members already receive to navigate their fertility journeys. And these services will be integrated with the health plans of our clients, ensuring full coordination across all aspects of the members' health care. We believe adding these services continues to raise the bar for what employers should expect from their benefit providers and further advances Progeny's position as the industry leader in women's health solutions. Let me now turn the call over to Mark, and he'll go over our results. Mark.