Progyny, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 1, 2022. Progyny manages employer fertility and family-building benefits, including its Smart Cycle treatment benefit and add-on Progyny Rx pharmacy solution. The company reported one operating segment. Its financial statements received an unqualified audit opinion.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $500.6 million | $344.9 million | +45% |
| Gross profit / margin | $112.1 million / 22.4% | $70.1 million / 20.3% | Margin +2.1 percentage points |
| Operating income | $32.3 million | $8.3 million | Improved |
| Income before taxes | $32.4 million | $8.7 million | Improved |
| Income tax benefit | $33.3 million | $37.8 million | Benefit remained substantial |
| Net income | $65.8 million | $46.5 million | +42% |
| Diluted EPS | $0.66 | $0.47 | +40% |
| Adjusted EBITDA (non-GAAP) | $67.3 million | $32.4 million | +108% |
| Operating cash flow | $26.0 million | $36.2 million | Down $10.2 million |
- Revenue comprised $355.6 million from fertility benefits (+40%) and $145.0 million from pharmacy benefits (+59%).
- Gross-margin improvement was attributed primarily to better pharmacy partner terms, provider contract renewals and care-management efficiencies.
- Net income materially benefited from tax accounting: the $33.3 million tax benefit was largely deferred, and the company reported $71.3 million of net deferred tax assets at year-end. Thus, net income substantially exceeded pretax income.
- Operating cash flow was pressured by a $68.7 million increase in accounts receivable, partly offset by higher accounts payable. Bad debt expense was $9.8 million, and the allowance for doubtful accounts rose to $17.4 million from $9.5 million.
- At year-end, cash and cash equivalents were $91.4 million and marketable securities $28.0 million; current assets were $258.5 million and current liabilities $98.8 million. No debt balance was reported. The $15 million revolving credit facility matured in June 2021.
- Management said available cash and expected operating cash flow should fund working capital and capital expenditure needs for at least 12 months.
Material changes and operating trends
- Clients increased to 191 from 135, and covered members served increased to 2.935 million from 2.335 million. The company separately reported approximately 4.0 million covered lives under contract.
- Progyny added approximately 85 clients in 2021. Progyny Rx was used by 81% of clients under contract, including 93% of clients signed in 2021.
- Annual ART cycles rose to 28,413 from 19,003. Reported all-member utilization increased to 1.30% from 1.16%.
- Two clients generated 34% of FY2021 revenue, compared with 35% in FY2020. Two entities represented 35% of year-end receivables.
- Stock-based compensation increased to $33.7 million from $12.8 million. Adjusted EBITDA is a non-GAAP measure and excludes stock compensation and other items; it should not be treated as cash flow or GAAP earnings.
- FY2021 quarterly revenue was $127.6 million in Q4 versus $100.3 million in Q4 2020. Q4 2021 operating loss was $0.2 million and net income was $15.1 million, including a $15.5 million income tax benefit.
Outlook, commentary, risks and unusual items
- The filing refers to 2022 guidance issued February 28, 2022, but does not provide a clear numerical guidance value in the supplied text. Management cautioned that estimates depend on uncertain COVID-19 effects, clinic volumes, member behavior and economic recovery.
- COVID-19 and variants continued to negatively affect revenue growth in 2021 through potential delays in fertility treatment, provider capacity constraints and employer benefit-spending decisions. The company said the full duration and impact remained uncertain.
- Key risks include client concentration and renewal/pricing exposure; unpredictable utilization; competition; dependence on fertility clinics, specialty pharmacies and other partners; healthcare and PBM regulation; privacy and cybersecurity incidents; and the ability to sustain growth and profitability. Management also cited the company’s historical operating losses, although it had achieved profitability beginning in 2020.
- Net income and margins should be assessed alongside the large deferred tax benefit, higher stock compensation, rising bad-debt expense and working-capital-driven cash-flow decline.
- A vendor arbitration was settled in December 2020 for $5.75 million without admission of liability; FY2020 included $9.3 million of settlement costs and related legal fees in the Adjusted EBITDA reconciliation. The filing said no other pending litigation was believed likely to have a material adverse effect.
- Leadership transitioned effective January 2022: Peter Anevski became CEO and David Schlanger became Executive Chairman. In February 2022, Progyny also signed a substantial office lease expansion, with new rent obligations beginning in 2023 and later years.
Investor facts to verify
- Review the February 28, 2022 release for the actual 2022 revenue and profitability guidance and compare subsequent results with those assumptions.
- Track whether receivables, bad-debt expense and operating cash conversion improve as revenue grows; assess client and receivables concentration.
- Separate recurring operating performance from tax benefits, stock-based compensation and non-GAAP adjustments.
- Monitor retention, utilization, client additions, Progyny Rx adoption, provider/pharmacy access and COVID-related treatment disruption.
- Assess the financial impact of the 2022 leadership transition, equity awards and office lease commitments.