Progyny, Inc. Q1 FY2025 earnings call

• Pete Anevski mentioned the company had a good start to the year with double-digit growth in revenue and adjusted EBITDA, record quarterly results, gross margin expansion, and significant cash flow. He discussed market data on birth rates, employers' focus on women's health benefits, channel partnerships including with Cigna and others, and the company's expansion of services in 2025 such as adding dual services to the maternity offering and launching a parent and child well-being program.
• Mark Livingston detailed first quarter results, noting revenue growth due to more clients and covered lives, breakdown of revenue by fertility and pharmacy, gross margin improvement, sales and marketing and G&A expenses, and expectations for second quarter and full year including revenue and adjusted EBITDA projections.

First quarter revenue grew 16.5% to $324 million. Fertility revenue increased 22% to $206 million, while pharmacy revenue increased 9% to $118 million. Gross profit increased 21% from the first quarter last year to $76 million, yielding a 23.4% gross margin, an improvement from the 22.4% margin in the prior year period. Sales and marketing expense was 5.5% of revenue, and G&A was 10.4% in the quarter. As of March 31, there were 532 clients with at least 1,000 lives, representing an average of 6.7 million covered lives in the quarter.

• First quarter revenue grew 16.5% to $324 million. Second quarter revenue is projected between $310 million to $325 million, reflecting growth of 2% to 7%, with adjusted EBITDA between $49 million to $53 million. Full year revenue is projected between $1.185 billion to $1.235 billion, reflecting growth of between 1.5% and 5.8%, and adjusted EBITDA between $190 million to $203 million.

Actual results may differ materially from forward-looking statements due to risks and uncertainties associated with the business as well as other important factors. For a discussion of material risks, uncertainties, assumptions and other important factors, please refer to the SEC filings in the today's press release, both of which can be found on the Investor Relations website.

Q: Congrats on the great print tonight. And Pete, congratulations on your Time Magazine recognition, really great to see the emphasis there on fertility benefits as well. If I were to look at historical seasonality of cycles per utilizer, you tend to have a step-up in 2Q from 1Q. But when we look at the guide, it implies kind of a more similar rate in 2Q to 1Q. So, I was just curious, is that kind of to account for some of the uncertainty that you mentioned? Or is there something else going on that might change kind of the -- how we should be thinking about the normal seasonality of utilization?

A: Annie, thanks so much. Yes, we're excited for the recognition. We're proud of what we're doing here. So, it's great to see that. As it relates to your question, it is more around having the guidance reflect the uncertainty than it is something that we're seeing is the simple answer.

Q: Congrats on a strong quarter and congrats, Pete, on the recognition. I want to follow up on your comments around the 2026 selling season. I know you guys noted that it is still early and most of the sales have been not now from last year. But outside of that, are you seeing any indications of employers putting the RFP process on hold? Are things taking longer, which could mean the decision-making could be a little delayed this year? And related to that, you also talked about the sales goal for the year. Is your sales goal similar to your historical target of adding as many lives to the year prior? Of course, it's 1.1 million lives excluding Amazon?

A: Yes. It's Michael. Thanks for the question. So first, yes, our sales goal is the same as it is every year. We're trying to bring on as much new business as we can. And as we said on an Investor Day last summer, we're targeting at least to add 1 million new lives each year. So that's unchanged. As for the pipeline, you sort of referenced it. It certainly is early, and there's certainly a lot more pipeline ones ahead of us that we continue to bring on new opportunities. And important sort of from a comparable perspective, the number of opportunities and dollars are comparable to prior year, while we're seeing the average lives lagging a little bit over -- from last year. That could be a lot of factors as that could be the timing. Certainly, some of the macro environment, macroeconomic environment aspects could be driving a little bit of that and a little bit of uncertainty in some businesses. But we're certainly seeing a wide array and diversity within employers that we have in the pipeline.

Q: This is [Ahmed] on for Mike Cherny. Congrats on the great quarter. If I could ask about the new modules that you've been adding. I appreciate the color you guys gave, but if you could double click on that, which modules are getting the most interest right now? We'd love to get any additional color on how you think about how they will eventually ramp longer term to your longer-range targets?

A: Yes. I think, well, it depends on how you define interest. From a sales perspective, last year and so far early this year, all of the models, if you will, are getting interest where we had 20% of clients overall last year, and as the sales year is starting this year, by one or more of the new modules. As it relates to engagement with the modules, there's a higher level of engagement with the menopause product. And the reason for that is that it's a much larger addressable audience vis-à-vis the maternity product. And so that's probably -- that's the easiest answer.

Q: Congratulations on the good quarter and the sort of resurgence in revenue growth. Can you talk about potential tariffs on your book of business? Could that possibly increase your cost of goods for your members for like the specialty medications or not? And would you be able to sort of pass those along to customers or not? Just any color there in terms of your own cost base? And then what you might be hearing from clients, customers' health plans. Is this even a topic of discussion or not?

A: Relative to existing tariffs that are announced, not really an impact for us on costs. Relative to comments that are out there around potential tariffs on pharmaceuticals, based on what's been discussed to-date, end-state drugs don't appear to be something that's being considered in terms of tariffs, but tariffs on potentially materials that go into drug manufacturing. So, hard to say -- hard to say if it will have an impact. We do have flexibility in our arrangements with our clients should there be an increase, but that's not the only lever that we have. We would also work with our industry partners to mitigate collectively the impact to plan sponsors is essentially how I think about it.

Q: You mentioned not anticipating the gross margin beat to continue through the year due to investments. But given the size of the beat, it implies a pretty sizable investment. So, could you go into a little bit more detail on what those are? How much is hiring and what are the non-staff-related investments?

A: Yes. So overall, we talked about the incremental investment related to both the platform as well as the product capabilities and expansion and the investments in the acquisitions to be -- that's going to hit the P&L to be roughly overall $15 million. The details of it, I'm not sure would be constructive relative to how much of that is hiring versus other things. But nonetheless, we had sized it and that number is still our estimate of the impact for this year.

Q: I'm just trying to understand a little bit about pricing benefits in the guide and in the quarter here. Could you just remind us how much, if at all, of a pricing benefit is expected in ART cycles for the year? What you're seeing here early on in Q1? And just maybe just that versus like typical inflation in IVF procedures and cost versus kind of historical ranges? And then I got one more follow-up.

A: Yes. I think you're referring to the growth and how much of the growth is driven by price. The answer is not really any. So, it's all a function of engagement and consumption and activity with the benefit as opposed to price.

Q: Okay. Great. And is that -- does the same whole for, I guess, the pharmacy benefit? I'm just curious how a drug price branded versus generic inflation layers into that for the quarter and I guess, expectations for the year there as well?

A: Yes. But the pharmacy benefit, it's very, very little. There are moderate drug price increases to certain drugs that are incorporated in it. But again, the majority of it is due to the larger number of lives under management and the activity within those members.