Progyny, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are against Q1 2022. Progyny provides fertility benefits and an integrated pharmacy benefit, Progyny Rx, to employer clients. It reported one operating segment.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $258.4 million | $172.2 million | +50% |
| Gross profit / margin | $58.6 million / 22.7% | $32.9 million / 19.1% | Profit +78%; margin +3.6 percentage points |
| Operating income (loss) | $15.0 million | $(0.1) million | Turned profitable |
| Net income | $17.7 million | $5.0 million | Up from prior year |
| Diluted EPS | $0.18 | $0.05 | — |
| Adjusted EBITDA | $46.4 million | $24.8 million | Up from prior year |
| Operating cash flow | $21.0 million | $(11.3) million | Improved |
| Cash and cash equivalents | $155.3 million | $120.1 million at Dec. 31, 2022 | — |
| Marketable securities | $52.6 million | $69.2 million at Dec. 31, 2022 | — |
Fertility benefits revenue was $157.1 million, up 42%; pharmacy benefits revenue was $101.2 million, up 65%. Cost of services rose 43%, slower than revenue growth. Management attributed the improved gross margin primarily to care-management delivery efficiencies. Sales and marketing expense increased 43% and general and administrative expense increased 28%.
At March 31, Progyny had $527.1 million of current assets and $206.9 million of current liabilities. Total liabilities were $225.3 million, including operating lease liabilities; the filing reports no debt balance. The company said available cash, marketable securities and operating cash flow should cover working-capital and capital needs for at least the next 12 months.
Changes, outlook and commentary
- Revenue growth reflected more clients and covered lives, expanded use of Progyny Rx, and a prior-year comparison affected by COVID-19. Clients increased to 379 from 288 at year-end 2022; covered lives rose to 5.351 million from 4.585 million.
- ART cycles performed increased to 13,171 from 8,924. All-member utilization was 0.54%, compared with 0.51%.
- Accounts receivable increased to $313.2 million from $240.1 million at year-end. Cash flow benefited from higher payables and accrued liabilities, while the increase in receivables used $78.4 million of cash. Bad-debt expense was $5.2 million, versus $2.3 million.
- Stock-based compensation was $30.8 million, up from $24.5 million. Adjusted EBITDA is a non-GAAP measure and excludes stock-based compensation, among other items.
- The company recorded a $1.3 million income-tax benefit, primarily related to equity compensation activity. The prior-year benefit was $5.1 million.
- Management said it issued Q2 and full-year 2023 guidance on May 8, 2023, but the supplied filing text does not provide clear numerical guidance values.
- A new New York office lease commenced in February 2023; Progyny recorded approximately $12.2 million of right-of-use assets and $12.1 million of lease liabilities. Further leased office space is expected to commence in 2024 and 2025.
Risks, contingencies and controls
Key disclosed risks include client retention and concentration, utilization variability, competition, economic weakness and inflation, provider-network and specialty-drug availability, cybersecurity and privacy incidents, and evolving healthcare, reproductive-rights and PBM regulation. One client accounted for 13% of Q1 2023 revenue; two clients together accounted for 29% in Q1 2022. A prior temporary Menopur supply interruption was disclosed; management said it did not currently expect further shortages but noted potential supply disruptions.
Progyny reported no legal proceedings or claims it believed would have a material adverse effect on its financial position or results. Management concluded disclosure controls were effective as of March 31, 2023 and reported no material quarterly change in internal control over financial reporting. The company cautioned that quarterly results may fluctuate and are not necessarily indicative of full-year results.
Important facts for investors to verify
- Read the May 8, 2023 earnings release or call materials for the actual Q2 and full-year guidance figures and assumptions.
- Track receivable collections, allowance for doubtful accounts, and cash conversion as revenue and client onboarding grow.
- Assess whether gross-margin improvement continues and how medical, pharmacy, rebate and personnel costs evolve.
- Monitor client concentration, renewals, covered-life growth, utilization trends and adoption of Progyny Rx.
- Review drug supply and pricing risks, regulatory developments affecting fertility benefits and PBMs, and the cost commitments from office leases.
- Consider the effect of substantial stock-based compensation when comparing GAAP earnings with Adjusted EBITDA.