Progyny, Inc.

Good day, everyone, and welcome to the Progeny, Inc. first quarter 2024 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's now my pleasure to turn the floor over to your host, James Hart. James, the floor is yours.

Thank you, Tom, and good afternoon, everyone. Welcome to our first quarter conference call. With me today are Peter Neske, 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 would 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 2024, and the assumptions and drivers underlying such guidance. The demand for our solutions, our expectations for our selling season for 2025 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 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, adjusted EBITDA margin on incremental revenue, and adjusted earnings per share. More information about these non-GAAP financial measures, including reconciliations with 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. We had a strong first quarter overall, making meaningful progress in the areas that are most impactful to our long-term growth. This includes a strong start to our most recent selling season and the advancement of new strategic partnerships, both of which I'll address in a few moments. In the first quarter, our continued focus on operational excellence allowed us to expand our adjusted EBITDA margins as compared to the first quarter a year ago, and we also produced our best first quarter operating cash flow. Despite these results, you've likely seen from the press release that the quarter unfolded differently than we had expected on the top line, as utilization for the first quarter came in modestly lower than we had expected. This coincided with the national conversations about fertility treatment and access to maternal health care that were sparked by the Alabama Supreme Court decision in February. I'll spend a few minutes walking you through this dynamic to help you appreciate why this doesn't alter our view of the long-term trajectory of the business, particularly since we're seeing Q2 utilization that is consistent with or better than prior years, although not quite as strong as it was in 2023. As a quick refresher on what informed our first quarter expectations, a year ago, utilization started strong in January and then continued to climb to record levels that persisted for much of 2023. This year, at the time of our February call, utilization for Q1 was pacing on virtually identical track as it had been in the prior year period. However, unlike last year, we began to see the ramp in member activity leveling off slightly in March, coinciding with the national conversations about women's access to reproductive health care sparked by the Alabama Supreme Court ruling. And even so, utilization remained quite healthy at 0.46%. In fact, higher than our utilization from the first quarter two years ago, but modestly lower than the 0.48 it was a year ago, which had formed the basis for our expectations. As our guidance has always been informed by what we're seeing at that time, with the unexpected leveling off and the ramp of activity, revenue this quarter was less than what we had expected. While we can't be certain why members don't take action, as no one contacts us to say why they're not doing something, we examine the QN activity by client, by industry, by region, and by clinical partner. And only one noticeable pattern emerged. The modest dip in activity that we saw across the country was more pronounced in the states where the most restrictive laws for women's reproductive healthcare, suggesting that a relatively small number of members were proceeding with a greater degree of caution before commencing their fertility journey. As the second quarter begins, utilization has remained healthy at levels that remain above 2022 and below 2023, which further reinforces the confidence we have about all the long-term trends remaining intact. The market data reveals how the macro trends remain highly supportive for our continued long-term growth. The incidence and prevalence of infertility continues to rise as people increasingly defer family building to later in life. And family building continues to be a high priority, particularly amongst people over 30 who are medically most likely to need fertility care as natural conception becomes more challenging as we age. And while overall birth rates are declining in the U.S., that's really being driven by women under 34 who, in making the decision to defer family building, are actually reinforcing the longer-term tailwind for the fertility industry as they will be the ones expanding the cohort of patients needing care once they approach their mid-30s. With the macro trends remaining very favorable, the modest variations we can see in utilization from period to period, where it's sometimes a bit higher, sometimes a hair lower, are far less indicative to our long-term success than the overall trend line is. And like any company, there are many drivers to our business. Of the areas that are within our control, which spans everything from member experience to clinical outcomes to client satisfaction and more, We set rigorous goals that we continue to meet or exceed, and we're extremely pleased with how 2024 has begun in each of these areas as well. And also, in any year, the most impactful driver to growth is our go-to-market success, which includes new sales, renewals, and upsells. So let's turn to the progress we're making in the current selling season. Though this season is just getting underway, we're extremely pleased with our active pipeline, which is favorable to what it was this time last year. And in November, we told you about the robust pipeline of not-now opportunities that we're carrying over into 2024. As in every year, there are certain prospects who, for a variety of reasons, weren't in a position at the time to add a fertility benefit or change their existing provider. We begin each season by reengaging with the not-nows, as they may now be in a better position to make a decision. Conditionally, the not-nows represent the majority of the early commitments we receive, and 2024 is proving to be no different, with strong early commitments from leading brands in healthcare, auto manufacturing, travel and leisure, and media, as well as multiple state and local government populations. This is a further demonstration of the flywheel effect, where our presence in an industry deepens once we win an initial account, and we see others in that industry look to maintain benefits parity by adding or improving their coverage. The season is also off to a strong start in terms of new pipeline built, including the average size of opportunities versus the prior year. We're generating additional pipeline through all the typical channels, including through our partnerships, conferences, targeted events, inbounds, introductions from the benefit components, and direct outreach. Now turning to upsells, the activity thus far is also very positive. There's a number of pathways to expand our relationship we've seen historically seen to 20 to 25% of the base take additional services each year. This year, our upsell cadence includes our newest services in menopause, maternity and postpartum care, and we're pleased with the response we've seen thus far. We expect these new services to represent a smaller contribution to our results than our fertility offering, as they are case rates, not medical claims, but will increase the diversity in our portfolio and broaden our reach to more members. And as usual, clients may also look to expand by adding to their existing fertility coverage with more smart cycles or other services such as preservation. In November, we told you about our first federal government population, which represents about 300,000 covered lives. Although that benefit is narrower than our usual offering and its contribution to our financial results is nominal, we continue to look at this as a beachhead opportunity as conversations of expanding coverage are encouraging at this point. We're also advancing several new channel partner relationships, including some of the most prominent health plans in the U.S., which upon completion would add to our existing agreements with CVS Health, Evernorth, Vistia Health, and further expand our go-to-market reach. These partnerships will help lay the groundwork to both accelerate our current market focus and offer opportunities into new segments. To conclude, we believe the engagement we're seeing in our current selling season demonstrates both the strong demand in the market as well as our position as the provider of choice for fertility and family building solutions. In every sales year, we look to grow the incremental covered lives as compared to the prior year. Although it's very early, given the strength we're seeing in the sales season thus far, we believe we're on track to meet that objective. We believe the momentum we're seeing across many areas of our business demonstrates that our market opportunity remains vast and we are in our strongest ever competitive position relative to other solutions in the market. Let me now turn the call over to Mark.