Progyny, Inc. Q2 FY2025 earnings call

• Strong second quarter results with growth in revenue and adjusted EBITDA, record quarterly results, gross margin expansion, and significant cash flow generation.
• Selling season progress: New client acquisition pipeline comparable to prior year, early commitments in client count and expected revenue comparable to prior year. Wins span various industries.
• Acquisitions integration: BenefitBump integration complete, leave navigation program sold standalone or integrated. Global initiatives on track. Leadership team additions with Melissa Cummings as COO and Geoffrey Clapp as CPO.
• Renewals: Early activity positive, clients expanding benefits. Added pelvic floor therapy to solution, formed partnership with OURA, and chosen by Amazon for their Health Benefits Connector program.

Second quarter revenue grew 9.5% over the prior year to $332.9 million. Fertility benefits revenue increased 11% to $214 million, while pharmacy revenue increased 8% to $119 million. As of June 30, there were 542 clients with at least 1,000 lives, representing an average of 6.74 million covered lives in the quarter. Following the second quarter, there were over 550 clients and approaching 6.8 million covered lives. Female utilization was 0.48% in the quarter, slightly above the prior year. Nearly 17,000 ART cycles were performed, a 9% increase over the prior year.

• Third quarter revenue projected between $290 million to $305 million (1%-6% growth, 14%-20% growth excluding prior year large client contribution). Adjusted EBITDA expected between $45 million to $49 million.
• Full-year guidance revised: Revenue between $1.235 billion to $1.270 billion (5.8%-8.8% growth, 15.1%-18.5% growth excluding prior year large client contribution). Adjusted EBITDA between $205.5 million and $214.5 million, net income between $52.3 million to $58.9 million.

• Business uncertainties and macro environment risks impacting actual results.
• Industry-specific activity and potential sector-specific impacts on business.
• Variability in member activity and treatments over the second half of the year.

Q: The commentary around the selling season and early commitments being comparable sort of in terms of client count and expected revenue, is that on a gross basis, like excluding the large customer contribution from last year? Or is that on a net basis in terms of what you won?

A: It's on a gross basis. So if you think about it, it's -- you would exclude the large client from both years and look at the growth this year. And if everything turned out the way it did for the full sales year, something in that neighborhood. So you're on pace on a gross basis.

Q: So I want to stick with the selling season commentary. Are you implying that you are seeing more smaller-sized employer client wins, but they're signing up for multiple services from you guys and large employers are taking longer to make a decision? Or is it more like there has been some change in win rates among the large employer clients? And based on the number of lives you've seen so far, how confident you are that you can still add at least 1 million lives next year?

A: It's not about whether or not small or larger clients are closing at a higher rate. It's how the sales year started where the overall pipeline from a lives perspective was slower but caught up materially in June and July and through now. And so as a result, if you think about it, the timing of when people are looking at a benefit and then making a decision as a function of when they start reviewing the benefit when they come into pipeline, right? So we are seeing large clients also close already, as I said in my prepared remarks. But the expectation -- our expectation, we believe, by the end of the sales year is that relative to average lives, we expect the year to catch up.

Q: So I want to stick with the selling season commentary. Are you implying that you are seeing more smaller-sized employer client wins, but they're signing up for multiple services from you guys and large employers are taking longer to make a decision? Or is it more like there has been some change in win rates among the large employer clients? And based on the number of lives you've seen so far, how confident you are that you can still add at least 1 million lives next year?

A: Yes. And I would just add, we continue to focus on our target set earlier in the year. And as usual or as in prior years, these next 3 months are our highest volume from a closing perspective. And as Pete referenced in his comments, with pipeline in a comparable position to last year, that's where we're focused and as we are every year.

Q: Great. And then quickly one follow-up on the Progyny Rx. I understand trends there could fluctuate quarter-over-quarter, but I just want to make sure we are not missing anything there. If you look at first half, the growth at Progyny Rx is like roughly half the growth of fertility benefit business. So should we assume that Progyny Rx should outpace in the second half in terms of the growth rate on year-over-year? Just help me understanding there.

A: Yes. It is more timing the first half. First quarter, as you know, sort of more -- a higher percent of initial consoles was going to impact pharmacy. But overall, whether it catches up and/or surpasses medical or on a full year basis by the end of the year is close and comparable, we'll see because exact timing even within a full year could be off a little bit, but it's going to be -- it's still -- we expect it still to be close to in line with the medical by the end of the year.

Q: You have [ Dev on ] for Allen Lutz here. I just had a quick question on guidance. I'm just trying to do the math here. It seems like just based on the ART cycle guidance there, the high end and the low end of the range, I'm just looking at the average revenue per ART cycle in the first half and then trying to apply that to the second half and kind of getting above the range there. So curious on considerations for average revenue per ART cycle in the back half of the year. And then I just got one more follow-up.

A: Yes. One thing you need to be careful of when you're looking at first half versus second half, again, total revenue is going to also include sort of that disproportionately high number of initial consults and non-ART activity in the beginning of the year. So you'll see a higher number per ART cycle because people are just beginning their -- a proportion of people are just beginning their journey in Q1. So again, we've guided to it so that I think if you look at where we've guided previously, it's inched up a little bit, but it hasn't changed much since our prior guide for the full year.

Q: Congrats on the quarter. Maybe just a question on the upsell. As you mentioned, some clients are expanding. Just curious what those conversations are and how hard it is to convince these corporates to add benefits to what they already have given the environment that we're in right now.

A: Yes. Sure. So yes, I mean, these are -- right, when we've talked about this before relative to fertility benefits as well. But these are -- particularly the large clients have a benefit strategy that is a multiyear approach. And as it relates to women's health, as we referenced in the comments around some of the survey findings. But even as we're out in the market talking, certainly, women's health benefits remain top of mind for benefit administrators, and they have a plan and strategy of how they're rolling that out. And so as we talk about what's next, we interact often with our existing clients often on a quarterly basis. And we're working with them over the course of the quarters and years to put these things in place. And so the conversation is sort of naturally progresses. But again, really varies depending on the strategic objective of the client, what they're seeing in their own cost and what they're trying to mitigate in their own costs. And that determines whether we expand into maternity or parenting or whether we're adding in menopause or some of our newer programs around global and leave navigation.

Q: Just want to drill in more and follow Jailendra's question on the selling season commentary that you stated. So was it -- am I fair to understand that you're just saying that you're just saying that the wins developed later than last year sort of in June and July? Is that what you meant by the lives commentary? But you also included the word demographics there. So wondering if you're talking about the sort of the cohort of the population set within the new client wins versus previous years? Just trying to unpack that more with more color, please.

A: Yes. Let me clarify it. When we talk about June and July later than last year, we're talking about pipeline additions and making commentary relative to overall active pipeline as of today now being comparable, where earlier in the year, pipeline additions were slower and we were a little behind in lives, right, which is separate and apart from when we talk about early commitments, i.e., wins so far this year, which are comparable year-over-year from a number of prospects and expected revenue perspective. And the demographics of those are yielding a higher expected revenue just based on the industries that have committed so far, which is why the -- even though the lives are slightly behind prior year committed to date, the expected revenue is still comparable to what it was this time last year. Is that helpful?

Q: Congrats on the quarter. Maybe just a question on the upsell. As you mentioned, some clients are expanding. Just curious what those conversations are and how hard it is to convince these corporates to add benefits to what they already have given the environment that we're in right now.

A: Yes. Sure. So yes, I mean, these are -- right, when we've talked about this before relative to fertility benefits as well. But these are -- particularly the large clients have a benefit strategy that is a multiyear approach. And as it relates to women's health, as we referenced in the comments around some of the survey findings. But even as we're out in the market talking, certainly, women's health benefits remain top of mind for benefit administrators, and they have a plan and strategy of how they're rolling that out. And so as we talk about what's next, we interact often with our existing clients often on a quarterly basis. And we're working with them over the course of the quarters and years to put these things in place. And so the conversation is sort of naturally progresses. But again, really varies depending on the strategic objective of the client, what they're seeing in their own cost and what they're trying to mitigate in their own costs. And that determines whether we expand into maternity or parenting or whether we're adding in menopause or some of our newer programs around global and leave navigation.

Q: I just wanted to go back to the comment of sales that have closed so far, the revenue being in line with past years, but the lives being lower because of the type of industry that the clients in. Does that mean that these clients are expected to have a higher utilization, and that's why the total revenue per client is higher? Or are these clients and industries that coming on as new clients are starting to purchase a broader set of your products?

A: No, it's the former. So a simple example that we gave in the past is whether it's tech, hospital systems, media, higher utilizing industries as opposed to labor and some older economy companies, retail, et cetera, are lower utilizing. So it's more a function of utilization rate by industry than it is a broader suite of products.

Q: Can you talk a little bit about how you're seeing interest out there from midsized employers or sort of a smaller size of large employers? Are you seeing an increase in demand to adopt fertility and family planning products?

A: We're seeing, as we've seen in the past, increasing demand across companies of all sizes. And that's been the case this year as it's been the case for us really since our existence. So as I look at overall active pipeline, number of prospects within it and the total lives and compare it to prior year this time, it basically says that there's interest across the board relative to company size.

Q: Congratulations on the good quarter. Can you talk a little bit about the mix? Like I think in terms of like maybe transfers versus egg freezes and sort of the pricing, the mix, any thoughts there would be helpful.

A: Yes. There's nothing to call out relative to mix this quarter vis-à-vis any periods, whether it's prior -- aside from normal seasonality, Q1 to Q2, but comparing it to prior year, et cetera, nothing really to call out in terms of mix. So I'm not sure what exactly you're looking for.

Q: And then just any color on -- I think you said you won some business with Amazon. Have you ever had clients that left and then came back at some point? Just any color on that -- those commentary would be very helpful.

A: Yes. We talked about a partnership with Amazon Connect, not that we won business with Amazon. But either way, we actually have, at times, have had clients return that left. None sort of to speak of or talk about by name, but it has happened more than once.