Progyny, Inc.

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

Thank you, Paul, and good afternoon, everyone. Welcome to our Third Quarter Conference Call. With me today are Peter Nevsky, 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 fourth quarter and full year 2024 and the assumptions and drivers underlying such guidance, including the impact of our fail season and client launches and our expected utilization rates and or mix, our anticipated number of clients and covered lives for 2025, 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 mark 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.

Thank you, Jamie, and thank you, everyone, for joining us this afternoon. In the third quarter, continue to execute against the strategic objectives that we outlined for you at our recent investor day, laying the foundation that will enable us to accelerate growth while meeting the needs of our clients and members and creating long-term value for shareholders. I'll expand on those areas shortly, but I want to begin with third quarter member activity, which continued to unfold differently from historical patterns with respect to how members progressed through treatment. Consequently, our third quarter results are below the ranges we set in August. I understand this is disappointing. To help you better understand what we're seeing, what we're doing in response, and how we think about the business moving forward, we're going to walk you through several areas. First, what's been different and unexpected with respect to the member activity in 2024? Second, how we're reflecting this variability in our guidance. Third, why despite how the year has unfolded differently than expected, we firmly believe the business is not only fundamentally strong, but also uniquely positioned to expand upon our leadership role in a large and growing market. I'll begin with member activity, which is actually two separate though related components. The first is the overall utilization rate, which captures the percentage of our 6.4 million members who have taken action to pursue care at a fertility clinic, which includes initial consultations during the given period. The second is the measure of consumption, which reflects the volume and types of services that the utilizing members have done also during the given period. With respect to the utilization rate, we continue to see that members are pursuing care at levels that are consistent with historical patterns, and that has continued in 2024. Third quarter utilization was 0.47 percent, both consistent with our expectations and equal to Q2's level. In fact, 0.47 percent is not only within the historical range, It's towards the higher end of that range, emphasizing that not only are members pursuing care, they're doing so at levels that reflect a strong, sustained need for our solution. Challenges with respect to forecasting our recent periods relate to the other component, consumption, as we've seen activity in Q3 that differs meaningfully from historical patterns. Primarily two aspects. First, the progression to treatment has slowed down modestly, as people are taking slightly longer to go from the consult, which is the first step in the clinical journey, to the treatment stage itself. The difference of even just a few days translates into lower overall consumption within a given period. And second, once people are progressing, we're seeing them consume fewer average stimulation-related ART cycles than we've historically seen, specifically for freeze-alls and egg freezing. As this is a relatively new phenomenon during Q3, there isn't enough data to determine whether or not this is a new trend. The activity we're seeing thus far in Q4 is the best evidence that it may not be a new trend, as we're seeing modest growth in average stimulation-related R-cycles per utilizer as compared to Q3 in 2024. In light of this seemingly contrasting data, we believe it's more instructive to look at the recent R-cycle consumption in comparison to longer periods. For example, the three-year growth we've seen in egg freezing is consistent with the long-term pattern over many years, even though the volume more recently has been more variable from year to year. However, we're not factoring the improved levels of pacing in both utilization and arc cycle consumption that we're presently seeing in our fourth quarter guidance. Instead, given how this year has presented more variability than we could have anticipated, We believe it's prudent to guide with the expectation of a return to the unfavorable trend that we saw in Q3, even though that would be below the activity we're actually seeing right now. While that reflects the what that we're seeing, the why side is inherently more difficult to understand. Our PCAs are focused solely on member experience and success, supporting members through whatever their journeys entail based on their needs. And we help members navigate through every step of their unique journey, and we don't ask them to justify the time it takes for them to get through those steps. That's because we're sensitive to factors that can affect a member's timing, whether it's medical options or life events that may impact that timing. We've ruled out a few things that are not causing this unexpected pattern. First, we know members have at least as much, if not more, coverage and that they aren't maxing out of their benefits. And second, we also aren't seeing a backlog at clinics. Members are getting the appointments they want when they want them. And despite the fluctuations we've seen this year, these don't in any way reflect upon the health and strength of our business and our ability to deliver for our members. We've successfully supported tens of thousands of member journeys, delivering a better experience, achieving higher clinical success rates, and driving meaningful savings for our clients. That's what ultimately creates value for our key constituencies, our clients, our providers, our members, and our shareholders. And we're more committed than ever to continuing to deliver against our strategic priorities in those areas. In any year, the selling season is obviously one of the most important priorities, and we're pleased with this year's results, which produced 1.1 million new lives from over 80 new client commitments. This is our fourth straight year of adding over a million lives, demonstrating once again the importance of fertility, family building, and women's health solutions to employers and the differentiation of our solution. This year's season is similar to past seasons in a number of important ways. Our newest clients continue to select robust levels of coverage, offering an average of two or three smart cycles, affirming that employers aren't suddenly looking to offer a skinnier version of the benefits. And we saw a mid-90% take rate for ProgenyRx, affirming the better member experience and cost savings we deliver through our integrated solution. Our wins represent a broad cross-section of nearly two dozen industries, including energy, consumer goods, healthcare, media, financial services, automotive manufacturing, and software. This continues our sector diversification and emphasizes how truly universal the need for our services is amongst all types of employers. And lastly, we continue to see a broad distribution by client size, with our newest logos contributing anywhere from 1,000 to over 100,000 lives. In fact, distribution of our newest clients by size is nearly identical to the base as it is today, highlighting the diversity of our opportunities in our room for ongoing growth. A notable difference this year from past seasons is a slightly higher skew amongst our largest tier. As those groups tend to do the deepest assessments and diligence, this reaffirms our competence in our competitive position. You'll recall that we previously told you how commitments were pacing ahead of last year and the pipeline was strong overall. So we understand that you may be looking at the 1.1 million lives in the context of the 1.3 million we achieved a year ago. I'll remind you that last year's 1.3 million included approximately 300,000 lives without access to our medical benefit. So on a life-for-life basis, our new fully-loaded lives are higher than last year. When we spoke to you in August, there were a number of jumbo opportunities in our pipeline, jumbo reflecting our largest deals, that gave us visibility to well over 1.3 million new lives as of August. Of the jumbo opportunities that remained and made a decision, we won all of them. The ones who didn't come to a decision represent over 400,000 lives and remain open and active opportunities in our pipeline, though we aren't able to project whether or when a decision will be made. This is no different than any sales year where some portion of our prospects end the sales year as a not now. They may have had competing priorities to consider or they just weren't in a position to make a final decision. As we've seen in the past, we'll enter next year with a very healthy pipeline of advanced opportunities, which are in addition to the new pipeline generated through our traditional methods, including working with channel partners who play a key role in broadening our reach and improving our sales efficiency. This year, we made significant strides with expanding those channel partner relationships. You'll recall how we signed our first regional health plan partner a year ago. This year, we're extremely excited to have added our first national health plan in addition to another large regional health plan and additional TPAs. And some of these groups are also becoming our clients and trusting Progeny to serve their own employee populations. This is an incredible testament to the demonstrable value we create. We couldn't be more proud of that and are excited to share more details as the partnerships grow. As important as our new sales and new partnership activities are, our selling season also includes renewals and upsell activity. So let me give you some updates there as well. As previously disclosed, a large client made a decision to exercise an option to conclude their services agreement with Progeny. Every client's decision always requires introspection, and this was no different. We also heard from the 99% of our clients who remain with Progeny into 2025. given the positive impacts we've made to both these clients as well as their workforce. While retention is one validator to our service, so are upsells and expansions. This year, we continue to see existing clients looking to deepen their progeny relationship with approximately 30% of clients increasing their program in some way in 2025. Historically, that meant more smart cycles or adding progeny Rx. While those still occur, upsells now include those clients who are adding our newest services in maternity, postpartum, and our menopause. We're extremely pleased with the reception we've seen for these newest services in the first year we've offered them. Probably 20% of our existing clients and 40% of our newest clients are adopting one or more of these programs in 2025. Taken together, more than 1.5 million of our covered lives, or more than 20% of our base overall, will have at least one additional program beyond the corporate facility and family solution. As 2025 will be our first year in market with these services, we don't have a sense for what the usage patterns will be. We don't expect meaningful revenue contribution from these products next year. Nevertheless, the interest in adoption we've seen from our clients speaks to their willingness to entrust progeny with even more aspects of their health programs. With that, let me turn the call over to Mark discuss the quarter in more detail and provide our expectations for the balance of the year.