Progyny, Inc.

Good afternoon, everyone, and welcome to the Progeny, Inc. Second Quarter 2024 Earnings Conference 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, Matt, 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 2024, and the assumptions and drivers underlying such guidance, the demand for our solutions, our expectations for our selling season for 2025 launches, 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 a discussion of the material risks, uncertainties, assumptions, and other important factors that could impact our actual results, please refer to our SEC filings in 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, and thanks, everyone, for joining us this afternoon. During the second quarter, we continued to make significant progress in many of the areas that are most impactful to building the long-term value of our business and laying foundation for our future growth in women's health. This includes our early success in the most recent selling season, the enthusiasm we're seeing for our newest services amongst existing clients, the advancement of new channel partner relationships, and the investments we're making to further enhance our already leading solutions in women's health and address even more of our clients' and members' needs. As it relates to our second quarter results, while the rate of utilization ticked up modestly from the first quarter, consistent with our prior assumptions, and our second quarter revenue adjusted EBITDA within our guidance, based on our current visibility to the remainder of the year, we now believe the second half will unfold differently than expected. Accordingly, we are adjusting our revenue guidance lower by approximately 5% at the midpoint, with corresponding reductions to adjusted EBITDA as well. Given the year has continued to unfold differently than we had originally expected, we recognize there's frustration and disappointment, and we share in those sentiments. The transparency we provide to the market as to what we're seeing and how that informs our financial guidance carries the highest level of importance to us. And the planning models we build leverage a vast data set of past activity, capturing appointments, scheduling to care consumption, so that we can provide what we believe to be the best, most predictive view of the future, given the limited amount of actual visibility we have around care consumption at any given time. Unfortunately, given the inherent variability in any business that doesn't have an annuitized revenue stream, let alone one whose revenue is driven by utilization in an area where the timing and pursuit of care is so deeply specific to the individual, we can and are seeing variability more than expected from historical trends. In 2023, we saw this dynamic play out, albeit with a positive effect, where a relatively small portion of the base was engaging more favorably than the historical pattern indicated. And as a result, we were able to raise our guidance multiple times last year. In 2024, we're seeing the opposite effect. I'll take a moment to walk you through what we're seeing. To be clear, member engagement has been healthy in 2024 at levels that are well within our historical norms. And that continues to be the case into Q3. However, where we're seeing a deviation from historical pattern is in the ART cycles for female utilizing member resulting in a negative impact to our previous outlook. We added a table in our press release this quarter to illustrate this dynamic more clearly for you. And the table shows how historically we see an increase in the average number of R-cycles per utilizer over the course of the year, reflecting the progression of our members collectively as they move through their fertility journeys. And while utilization as a percentage is thus far level with Q2, you can see from the table that we would ordinarily expect for average cycles per utilizer to increase to something like 0.56 in Q3 and then tick up a bit higher in Q4 as well. While it has increased over the first half of the year, we're anticipating a lower rate of increase than what we ordinarily would expect or none at all over the second half of the year, and this is driving approximately 7% lower revenue per utilizing member. The obvious question then is why aren't we seeing the customary pattern in 24? There are a number of factors that could be causing this, such as higher clinical success rates, which would result in fewer treatments per utilizer, different treatment paths based on the member's medical need, or different timing of the treatment journey based on the member's preference. The table highlights we aren't seeing or expecting a decrease in cycles per utilizer, and because the rate of utilization is also expected to remain consistent with past patterns, we aren't viewing this as an indicator of a lesser demand audit. But we also can't predict how long this lower average will last. So accordingly, we believe in outlook on the high end, showing we've consistently seen throughout the year, and the low end showing a decline in both utilization rate and R-cycles per female utilizing member. At the midpoint, we estimate the impact of this to be approximately 55 million headwinds to the revenue from our previous guidance. We're also making an adjustment to our forecast to reflect that a small number of clients reported lower covered lives this quarter, either from recent reductions or as employees from previous rounds of reductions may be coming off of their COVID recovery. To be clear, we aren't seeing any large-scale workforce reduction programs reported by any client. However, the collective impact across our full base this quarter was approximately 100,000 covered lives or approximately 10 million of headwinds to the top line. While reductions aren't new, there are always some clients lowering headcount in any given year, We've historically seen growth from other clients act as an offset. Though a meaningful number of clients have increased their headcount this year, it hasn't been enough to fully mitigate the reductions. Mark will walk you through the details of our guidance shortly, but I want to reemphasize that while the factors affecting our outlook today are beyond our ability to influence our control, and we can never have perfect visibility into care consumption within the utilization model, what is within our control is the transparency who provide for the market regarding the drivers of our business. Our hope is that doing so will allow investors to turn their focus back towards those areas that are within our control, where we continue to successfully execute against our strategic priorities and why we believe in the long-term strength and trajectory of the business isn't in any way affected. Those areas include building the long-term value of the business and positioning progeny as both an industry leader and a catalyst in raising the bar in the delivery of solutions for women's health care. So turning now to those areas, beginning with our latest selling season, since that has the greatest impact to our long-term growth, also demonstrating our leading industry position. Our goals are clear each season. First, we want to expand our market share through new client acquisition. Second, we seek not only to maintain our high rate of retention, but also to grow our relationships with existing clients through expansions and upsells. And lastly, we look to develop new partnerships to enhance our market presence and create efficiencies in our sales efforts. At this point in the season, we're pleased with our progress across all these areas. With respect to the first priority, adding new clients, we're now in the heart of the selling season. Employer demand remains strong with a consistent pipeline of opportunities compared to last year's selling season. We're also continuing to add to our new sales pipeline as companies are evaluating their benefit offering throughout the year. As usual, we anticipate that the majority of client decisions will be laid this summer and early fall. As most companies look to finalize their benefits ahead of their open enrollment activities in Q4. I'm pleased to report that at this point in the season, commitments received to date are pacing ahead of where we were at this time last year. And although this is just one indicator of demand, we believe these early commitments demonstrate that the appetite for family building and women's health solutions remain robust. As usual, we'll provide you with a recap of the complete selling season on our next call in November, but at this point in the season, we are pleased with where we are. In any selling season, Our goal is to meet or exceed the number of covered lives from the prior season. And although the majority of commitments for sales seasons are still ahead of us, we believe we're on pace to meet this objective. Consistent with our most recent seasons, our earliest wins for 2025 are coming from a wide range of industries, including financial services, hospitality, media, state and local government, and labor unions, just to name a few. which we continue to believe speaks both to the broad appeal for our solutions as well as our differentiation in the market. Our wins so far this season are broadly diverse in terms of size, ranging from 1,000 wives to in excess of 100,000. We're also continuing to see from our commitments to date a high take rate on ProgenyRx, further validating the significance of our differentiation in terms of cost and member experience with that product. And from my perspective, a very promising development this year is that a meaningful number of wins are also choosing to take one or more of the newest products in our solution, such as menopause, maternity, and postpartum support. Equally encouraging is that we're seeing the same dynamic with existing clients. At this point in the season, accounts representing approximately 1 million of our existing covered lives have chosen to offer one or more of these products to their employees in 2025. And while we've always had multiple pathways to grow with existing clients, our newest products represent an exciting addition to our upsell and expansion activities. And while we don't expect meaningful revenue contribution from these products in 2025, we're encouraged by the interest in adoption rate for employers that we've seen to date. In terms of renewals more broadly, activity thus far has been consistent with our typical rate of near 100 percent retention. We're also not seeing any clients looking to reduce their benefit for next year reflecting the value they're continuing to see as we improve the efficiency of their overall health care spend while also helping their workforce realize their family building goals. And lastly, with respect to our business development priorities, we continue to see significant opportunities for ongoing expansion through the development of additional channel partner relationships. Last quarter, we told you that we were advancing several new partner relationships, and we recently became the preferred partner to Meritane Health, subsidiary of Aetna and the second-largest TPA in the country with 1.5 million members, adding to our existing agreements with CVS Health, Evernorth, and Vistia Health. In addition, we are progressing other channel partner opportunities and hope to be able to provide additional detail on future calls. We believe continuing to add these channel partnerships are an important part of the go-to-market strategy since they act both as validation for our market-leading solution as well as provide an alternative way to reach and contract with new prospects. This quarter, we also enhanced our global offering through the acquisition of April, a Berlin-based fertility benefits platform, expanding the scope of services we can provide to multinational employers and their employee populations in over 100 countries. April has created a platform, customizable by country, to provide members with personalized, culturally sensitive education support care navigation, and we're excited about the opportunities to broaden our support on a global scale. Let me now turn the call over to Mark to review the quarterly results before I come back with some closing remarks. Mark.