Progyny, Inc.

Good day, everyone, and welcome to the Progeny, Inc. Third Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, Matthew, and good afternoon, everyone. Welcome to our third-order conference call. With me today are Pete Inefsky, CMSH 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 fourth quarter and full year 2023, and the assumptions and drivers underlying such guidance, including the impact of our sales season and client launches, and our expected utilization rates and mix, our anticipated number of clients and covered lives for 2025, 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 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 it over to Pete.

Thank you, Jamie, and thanks, everyone, for joining us this afternoon. We're pleased to report that Progeny had a very strong third quarter, both in terms of our financial performance as well as in the continued execution of our go-to-market activities. Those activities, which include new client acquisition, the retention of existing clients, and the further diversification of our business by expanding into new industries, while also adding new channel partners, have positioned us for another year of strong growth in 2024 with 1.3 million new covered lives sold, as well as a near 100% retention rate for the eighth year in a row. Before I get into the details of the sales season, Let me begin with the highlights of our financial performance. We had record quarterly revenue of $281 million, reflecting 37% growth over the prior year period, as well as record adjusted EBITDA, which increased 43% over the third quarter of 2022 to $50 million. This yielded an adjusted EBITDA margin of 17.8%, which was an 80 basis point increase over the prior year period. As we've seen throughout 2023, our results this quarter once again reflect that member engagement remains healthy, demonstrating the importance of companies offering this benefit as members pursue the treatments they need in order to achieve their family building goals. As the prevalence of infertility continues to rise, with more people now needing assistance than ever before, and with millennials routinely citing family building benefits as one of the most relevant factors when deciding where they want to work, we've seen how fertility and family building solutions have increasingly become important to employers as they look to meet their recruitment, satisfaction, and retention goals. Progeny's continued focus on value to our clients and member satisfaction remains the foundation for our ability to lead and grow the market through a combination of a unique plan design, active management of the member experience, and the collaborative relationships we've forged with the providers in our proprietary network. We continue to distinguish ourselves as the provider of choice for fertility and family building solutions amongst the world's largest leading brands. We're pleased with this year's sales season, highlighted by adding 1.3 million new lives from over 85 new client commitments, demonstrating the market's continued adoption of family building solutions and further solidifying our leadership position. Because a small number of these clients both sold and launched in this sales year, we expect over 460 clients and approximately 6.7 million covered lives in 2024. And to put this into perspective, at the time of our IPO, just four years ago, we had 87 clients and approximately 1.4 million, I'm sorry, 1.5 million covered lives, which means we have more than quadrupled our clients and covered lives since 2019. Even with this sustained track record of success, and once our newest clients have all gone live, we still remain at a very early stage of penetrating our market opportunity with just a mid single digit share of either the 8,000 companies or the 100 million covered lives in our current addressable market. The clients we've added for 2024 reflect an exceptionally diverse cohort representing a wide range of industries, including chemicals manufacturing, hospitality, healthcare, energy, transportation, software, and telecommunications, to name just a few. And our book of business now represents approximately 45 different verticals. We continue to see strong momentum through the flywheel effect, where our initial win in an industry lays the groundwork for future success within that vertical as the other brands in that industry look to reestablish parity with the early adopters. A good example of this is the labor market, where we won our first client just a year ago and have had strong second year success winning new clients across different types of TAP Hartley populations. As this one final anecdote of this dynamic, a year ago we won our first professional sports team client and this year we not only won additional sports teams, we also won our first professional sports league. We also continued to see a broad range in the size of the newest clients spanning from 1,000 to well over 100,000 lives, which further demonstrates that fertility has become a relevant benefit for any employer, regardless of the size of their operations or the industry in which they operate. This season, we also expanded into our first federal government population, representing approximately 300,000 covered lives. Government plans are a large and attractive new channel for us, particularly as those groups continue to look to enhance their benefits and keep parity to the benefits that their corporate counterparts provide. Given the stringent requirements that any provider must meet in order to be approved to serve the federal market, we believe the flywheel effect has the potential to be even more impactful within government than what we've seen amongst corporate employers, which would make this an accelerator to our long-term growth. At this point, the federal government has defined a fertility benefit more narrowly than what we typically see. To meet these requirements, we modified our usual scope of services and are expecting to see meaningfully lower financial contribution per engaged member from this population in 2024. We are excited about this unique opportunity as there could be increased contribution over time if the coverage is broadened and additional lives are won, similar to what we see with our corporate clients. Setting aside this unique client, the remainder of our newest clients have continued to select robust levels of coverage offering two or three smart cycles on average, consistent with what we've historically seen. This year, we've also achieved our strongest ever adoption rate for ProdigyRx, with 98% of the newest clients taking the pharmacy benefit. This comes on the heels of last year's 97% take rate. We believe our extraordinary success in selling the integrated solution is due to the significant combined cost savings we deliver with integrated medical and Rx services, as well as our superior member experience, that eliminates the risk of treatment delays while also guiding the patient through a complex medication protocol. Once all these newest clients launch in combination with the existing clients who added the RxBenefit for 2024, we anticipate that approximately 93% of our clients will have the integrated solution. While new sales activity is a critical focus for us and is the largest contributor to our incremental growth each year, Retaining existing clients and adding new services are also significant priorities, and we're extremely pleased to have achieved a near 100% retention rate for the eighth straight year in a row, while also expanding the services that we're providing to our clients. We believe our sustained success with retaining an extraordinarily high rate of our clients and lives underscores the demonstrable value that our solution delivers year after year, especially when you consider that our clients include many of the most analytical and data-driven companies in the world. Further evidence of the value inherent in our services, we continue to see existing clients looking to expand their prosody benefit for 2024, with more than 20% of clients increasing their programs in some way for next year, either by adding more smart cycles, taking prosody Rx, covering more services such as donor tissue or fertility preservation, or expanding their adoption and surrogacy benefits in recognition of the many different pathways to parenthood. Of course, employers typically have many priorities with respect to their health plan and benefit strategies, and this year was more magnified in this regard. In 2023, we've seen companies evaluating a number of areas from their concerns on overall medical cost trends, which resulted in increasing evaluations of health plans and benefit strategies, as well as the rise of demand around GLP-1 and the overall ongoing macroeconomic uncertainty. Even with these competing factors, we've seen that fertility has remained a significant priority, and we are entering next year with meaningful tailwinds behind us. As in every year, a portion of the prospects at our pipeline end the sales year as a not now due to the competing priorities that I discussed previously. This year is no different, and we have a healthy number of opportunities remaining in our active pipeline that are carrying over into next year. We've gained considerable expertise over the years at effectively managing multi-year sales cycles, and in fact, in each of our previous selling seasons, most of our earliest wins have been conversions of what had once been a not-now prospect, and we would expect the same for 2024. Accordingly, we're excited to be entering next year with a very healthy pipeline of advanced opportunities, which, of course, will be in addition to whatever new pipeline that we build through all of our traditional methods, including the channel partners who play a key role in broadening our reach and improving sales efficiencies. Earlier this year, we discussed the new partnerships we forged with a number of leading organizations, Ever North, Children's Hospital Association, Quantum Health, in addition to our existing relationships with CVS Point Solutions. And though we're only in the early initial stages with our newest partnerships, we're pleased with the progress we've made and feel well-positioned as we look into 2024. To add to this already strong list, we're pleased to announce that we recently signed a partnership with Vistia Health, who has selected Prodigy to be its preferred vendor for fertility and family building benefits, giving us access to the customers in their portfolio, which includes the clients of one of the largest health plans in southeastern Pennsylvania. As with our other distribution partner relationships, when a Vistia Health client is looking to add fertility to their benefit coverage, Prodigy will be the preferred fertility solution and will collaborate with them during the sales process. We're excited about the potential of this new relationship and view this partnership as enhancing our market presence even further with health plans in 2024, while also demonstrating the strength of our competitive position and our differentiation in the market. With that, let me now turn the call over to Mark to discuss the quarter in more detail and provide our expectations for the balance of the year.