Progyny, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; quarterly figures below are unaudited. Dollar amounts are in millions unless stated otherwise.
Business context
Progyny provides employer-sponsored fertility and family-building benefits, including its Smart Cycle treatment bundles and optional Progyny Rx pharmacy benefit. At year-end, it reported 135 active clients and approximately 2.335 million members; elsewhere the filing describes more than 180 clients and approximately 2.7 million covered lives under contract. The company attributes growth to new client wins, expanded coverage and increasing adoption of Progyny Rx.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $344.9 | $229.7 |
| Gross profit / gross margin | $70.1 / 20.3% | $45.5 / 19.8% |
| Operating income | $8.3 | $9.7 |
| Net income (loss) | $46.5 | ($8.6) |
| Diluted earnings (loss) per share | $0.47 | ($0.41) |
| Adjusted EBITDA | $32.4 | $18.3 |
| Cash provided by (used in) operating activities | $36.2 | ($1.5) |
- Revenue rose 50%. Fertility benefit revenue increased 34% to $253.6 million; pharmacy benefit revenue increased 128% to $91.3 million.
- Gross margin improved 0.5 percentage points. Operating expenses increased 72% to $61.7 million, including a 95% increase in general and administrative expense to $46.7 million.
- FY2020 net income included a $37.8 million income-tax benefit, mainly from releasing substantially all of the valuation allowance on deferred tax assets. The reported profit therefore substantially exceeds pretax income of $8.7 million.
- Cash and cash equivalents were $70.3 million and marketable securities were $39.0 million at year-end. Working capital was $112.4 million. The company reported no borrowings under its $15 million revolving credit facility.
- Accounts receivable was $75.7 million, including an allowance of $16.2 million; operating cash flow also reflected a $35.3 million increase in accounts receivable. Total liabilities were $87.0 million, including $9.5 million of operating lease liabilities. The filing reports no material funded debt at year-end.
Fourth-quarter comparison
| Metric | Q4 2020 | Q4 2019 |
|---|---|---|
| Revenue | $100.3 | $65.1 |
| Gross profit | $20.7 | $11.8 |
| Operating income | $1.2 | $1.1 |
| Net income (loss) | $39.1 | ($4.4) |
Q4 2020 net income included a $37.9 million income-tax benefit; quarterly operating income was broadly similar to Q4 2019 despite higher revenue.
Material changes and unusual items
- COVID-19 materially reduced revenue growth in 2020. Fertility treatment volumes fell after March 2020 guidance from the American Society for Reproductive Medicine to suspend new cycles; most clinics resumed their full range of services toward the end of Q2.
- Two clients represented 35% of FY2020 revenue (18% and 17%), compared with three clients representing a combined 41% in 2019. Client concentration remains significant.
- The company settled a vendor arbitration in December 2020 for $5.75 million, without admission of liability. The vendor had sought $25 million. FY2020 Adjusted EBITDA excludes $9.3 million of settlement costs and associated legal fees.
- In 2020, the company adopted lease accounting and expected-credit-loss standards. Adoption of the credit-loss standard reduced opening accumulated equity by $1.2 million. It also ceased to qualify as an emerging growth company as of December 31, 2020.
Outlook, risks and contingencies
- Management said existing cash, marketable securities, operating cash flow and available credit should support working capital and capital expenditures for at least the next 12 months. It cautioned that pandemic effects on utilization, clinic capacity, clients and the economy remained uncertain.
- The filing references 2021 guidance issued February 24, 2021, but the provided filing text does not state the guidance figures.
- The $15 million SVB revolving facility is subject to borrowing-base limits, covenants and a minimum quarterly revenue covenant; it was scheduled to mature in June 2021 and was amended in February 2021. The company reported compliance at December 31, 2020.
- Principal risks include COVID-related treatment delays and weaker employer spending; competition; client retention and concentration; variable utilization; provider and specialty-pharmacy network dependence; cybersecurity and privacy exposure; and complex, evolving healthcare, PBM and state licensing regulation.
- Management and the auditor concluded that internal control over financial reporting was effective at year-end. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of FY2020 earnings and Q4 profit reflects the non-cash deferred-tax-asset valuation allowance release, and how sustainable is profitability excluding that benefit?
- Whether treatment utilization and revenue recovered after COVID-related suspensions, and how 2021 guidance compares with actual results.
- The reconciliation between 135 year-end active clients and the filing’s broader references to more than 180 clients and 2.7 million covered lives.
- Collection trends, receivable allowances and working-capital needs, particularly given concentrated client receivables and the increase in accounts receivable.
- The status and terms of the SVB credit facility after its February 2021 amendment, including maturity, borrowing availability and revenue covenant headroom.
- Any further costs or claims related to the settled vendor arbitration, and the effect of client concentration on renewals and pricing.