Progyny, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Progyny provides fertility benefits and an add-on pharmacy benefits solution to self-insured employers.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $81.0 million | $47.2 million | +72% |
| Fertility benefit revenue | $59.4 million | $40.4 million | +47% |
| Pharmacy benefit revenue | $21.6 million | $6.8 million | +216% |
| Gross profit / margin | $16.6 million / 20.5% | $10.0 million / 21.1% | +67% gross profit; margin down 0.6 percentage points |
| Operating income | $3.9 million | $3.1 million | +24% |
| Net income | $4.1 million | $2.5 million | +61% |
| Adjusted EBITDA (non-GAAP) | $7.1 million | $4.4 million | +64% |
| Operating cash flow | $12.1 million provided | $6.2 million used | Improved $18.3 million |
Revenue growth reflected more clients and covered lives, as well as wider adoption of Progyny Rx. Cost of services rose 73%, slightly faster than revenue. Management attributed the lower gross margin primarily to retaining care-management staff while treatment volumes were paused. Operating expenses increased 86% overall; general and administrative expense rose 110%, including higher personnel and stock compensation, arbitration legal costs, bad debt, insurance, and public-company costs.
Financial position and liquidity
- Cash and cash equivalents were $91.6 million at March 31, 2020, up from $80.4 million at year-end 2019; total assets were $180.1 million and stockholders’ equity was $121.1 million.
- Current liabilities were $59.1 million against current assets of $161.9 million. The company reported no borrowings under its $15 million revolving credit facility, which matures in June 2021 and is subject to borrowing-base and covenant terms.
- Operating cash flow benefited from increases in accounts payable and accrued liabilities that offset much of the cash use from higher receivables. Investing activities used $0.7 million; financing activities used $0.2 million. Cash increased $11.3 million during the quarter.
- Management stated that cash, operating cash flow, and available credit were expected to support working capital and capital expenditures for at least 12 months. It reported compliance with credit-facility covenants at quarter-end.
Material changes and operating trends
- Clients grew to 132 from 78 a year earlier, while covered lives rose to approximately 2.095 million from 1.036 million. ART cycles increased to 4,443 from 2,627, although reported overall member utilization declined to 0.46% from 0.53%.
- Two clients each represented more than 10% of Q1 2020 revenue: one contributed 17% and another 16%. The filing also reports a 17% client concentration in Q1 2020 versus 18% for that client in Q1 2019.
- Stock-based compensation increased to $2.0 million from $0.5 million. Basic and diluted earnings per share were $0.05 and $0.04, respectively, compared with $0.01 for both measures in Q1 2019; share counts are not directly comparable following the 2019 IPO and preferred-stock conversion.
Outlook, risks, and unusual items
- COVID-19: Management said the pandemic had a material negative impact on Q1 results. After the American Society for Reproductive Medicine recommended suspending new treatment cycles on March 17, member access to fertility care declined sharply. Clinic reopening timing and the pace of return to normal volumes remained uncertain. Management retained care-management staff in anticipation of resumed services.
- Guidance: Progyny withdrew its previously issued Q1 and full-year 2020 guidance on March 18. It disclosed issuing Q2 2020 guidance on May 12, but the guidance figures are not provided in the filing text supplied here. Management cautioned that forecasts depend on uncertain pandemic, clinic-reopening, and recovery assumptions.
- Arbitration: A former specialty-pharmacy vendor sought $25 million in damages, fees, interest, and costs; the company said the alleged damages were not quantified or factually supported. Two of the vendor’s four claims were dismissed, and Progyny stated it would vigorously defend the remaining claims. The outcome could not be predicted.
- Other items: The company recorded $1.3 million of bad-debt expense. The prior-year period included a $0.6 million preferred-warrant valuation charge; those warrants converted in connection with the IPO and are no longer remeasured as preferred warrants.
- Key risks include prolonged treatment disruption, economic pressure on client benefit spending, customer concentration, competition, provider and pharmacy relationships, healthcare regulation and data security. Management said it had not identified a material liquidity deficiency from COVID-19 as of the filing.
Important facts for investors to verify
- Q2 guidance issued May 12 and subsequent updates on clinic availability, treatment volumes, and member utilization.
- Receivables, collections, bad-debt allowances, and the timing of provider payments as activity resumes.
- Revenue exposure to the largest clients and their renewal, enrollment, and benefit-spending decisions.
- Progress and potential financial exposure in the vendor arbitration, including any change in the claims or proceedings.
- Availability under the revolving facility, covenant compliance, and whether cash generation remains adequate under extended pandemic disruption.