Progyny, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are unaudited. Progyny (Nasdaq: PGNY) provides employer-sponsored fertility and family-building benefits, including its Smart Cycle treatment bundles and add-on Progyny Rx pharmacy benefits.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $786.9 million | $500.6 million | +57% |
| Gross profit / margin | $167.3 million / 21.3% | $112.1 million / 22.4% | Profit +49%; margin down 1.1 percentage points |
| Operating income / margin | $23.3 million / 3.0% | $32.3 million / 6.5% | Down 28% |
| Net income | $30.4 million | $65.8 million | Down 54% |
| Adjusted EBITDA | $125.7 million | $67.3 million | +87% |
| Cash from operations | $80.4 million | $26.0 million | +$54.4 million |
Revenue comprised $510.1 million of fertility-benefit services (+43%) and $276.8 million of pharmacy-benefit services (+91%). The company attributed growth primarily to more clients and covered lives, including greater Progyny Rx adoption. Cost of services rose 59%, faster than revenue, and gross margin declined. Operating expenses increased 80%, with stock-based compensation rising to $100.7 million from $33.7 million. Adjusted EBITDA is a non-GAAP measure and excludes stock-based compensation, among other items.
Q4 2022: Revenue was $214.3 million versus $127.6 million in Q4 2021. Gross profit was $44.5 million; operating income was $3.3 million; net income was $3.4 million, compared with $15.1 million in the prior-year quarter.
Liquidity, debt and cash flow
At year-end, cash and cash equivalents were $120.1 million and marketable securities were $69.2 million. Current assets were $433.9 million and current liabilities $159.5 million. Operating cash flow was $80.4 million; investing activities used $43.9 million, primarily reflecting net purchases of marketable securities; financing activities used $7.9 million, mainly for employee taxes on equity awards. The filing reports no outstanding debt at year-end; its $15 million revolving credit facility matured in June 2021. Management said available cash and expected operating cash flow should fund working capital and capital needs for at least the next 12 months.
Material changes and operating trends
- Year-end operational metrics showed 288 clients and 4.585 million members, versus 191 clients and 2.935 million members a year earlier. The company also describes having over 370 employers under contract; the filing’s client metric uses its stated definition of an active contract in the period.
- Two clients generated a combined 26% of FY 2022 revenue, down from 34% in FY 2021. Progyny reports that 90% of current clients under contract use Progyny Rx.
- Annual ART cycles increased to 42,598 from 28,413. The reported all-member utilization rate was 1.23%, versus 1.30% in 2021; the female-only rate was 1.03%, versus 1.07%.
- The company reported a $5.9 million income-tax benefit in 2022, compared with $33.3 million in 2021. The prior-year benefit included larger discrete tax benefits related to equity compensation. Consequently, net income fell despite substantial revenue growth.
Outlook, risks and unusual items
The filing refers to guidance for Q1 and full-year 2023 issued February 27, 2023, but the supplied filing text does not provide a clear numerical guidance value. Management cited continued growth opportunities from new client acquisition, expansion within existing clients and additional services, while noting that results depend on benefit utilization, client renewals and economic conditions.
- Key business risks: client and revenue concentration; competition; changes in utilization or treatment mix; economic pressure on employer benefits spending; and the ability to retain provider, pharmacy and insurance-carrier relationships.
- Operational and regulatory risks: cybersecurity and sensitive health-data privacy, complex and changing healthcare and PBM regulation, and state laws affecting reproductive and fertility services. COVID-19 continued to negatively affect revenue growth, according to management.
- Pharmacy supply: Menopur deliveries were temporarily paused between October and November 2022, creating a shortage. The company said it did not expect further shortages at that time but warned that supply disruptions could recur.
- Accounting and dilution: accrued receivables and related claims payable rely on estimates; the auditor identified these as a critical audit matter. Stock-based compensation was elevated, with $328.7 million of unrecognized compensation costs for unvested options and restricted stock units at year-end.
- Contingency: a vendor arbitration seeking $25.0 million was settled in December 2020 for $5.75 million, without admission of liability. The company reported no other pending litigation it believed could have a material adverse effect.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2022.
Important facts for investors to verify
- Review the Q1 and FY 2023 guidance and subsequent results; numerical guidance is not clear in the supplied filing text.
- Assess the sustainability of growth and margins, including the effect of treatment utilization, pharmacy costs and rising operating expenses.
- Track the two largest clients, their renewals and pricing, and reconcile the reported 370-plus employers under contract with the 288-client active-period metric.
- Monitor receivables and credit quality: accounts receivable was $240.1 million, including a $28.3 million allowance for doubtful accounts; bad-debt expense was $13.8 million in 2022.
- Evaluate the scale and potential dilution from stock-based compensation and outstanding equity awards.
- Check for further fertility-drug supply disruptions and changes in healthcare, PBM or reproductive-care regulation.