Progyny, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 6, 2022. Progyny provides fertility benefits and an add-on pharmacy benefits solution to employers. Financial amounts below are in U.S. dollars; millions unless noted.
Business context and operating metrics
- At March 31, Progyny served 264 employer clients and approximately 3.96 million covered lives, versus 191 clients and 2.94 million lives at December 31, 2021.
- ART cycles performed increased to 8,924 from 6,558 a year earlier. All-member utilization was 0.51%, down from 0.54%; female-only utilization was 0.45%, down from 0.47%.
- Progyny Rx was offered by 83% of clients. The business has a utilization-based revenue component and, for most clients, a population-based PEPM fee.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $172.2 | $122.1 | +41% |
| Fertility benefits revenue | $110.9 | $88.9 | +25% |
| Pharmacy benefits revenue | $61.3 | $33.3 | +84% |
| Gross profit | $32.9 | $28.9 | +14% |
| Gross margin | 19.1% | 23.7% | Down 4.6 percentage points |
| Operating income (loss) | $(0.1) | $11.8 | Declined |
| Net income | $5.0 | $15.2 | Down 67% |
| Adjusted EBITDA | $24.8 | $17.3 | +44% |
| Operating cash flow | $(11.3) | $0.5 | Declined |
Basic and diluted earnings per share were $0.05 and $0.05, respectively, versus $0.17 and $0.15 in Q1 2021. Adjusted EBITDA is a non-GAAP measure; the filing cautions it excludes, among other items, stock-based compensation, taxes and capital commitments.
- Cost of services rose 49%, faster than revenue, and operating expenses increased to $33.0 million from $17.1 million. Sales and marketing expense was $10.0 million (+150%); general and administrative expense was $23.0 million (+76%).
- Stock-based compensation was $24.5 million, compared with $5.0 million a year earlier. A $5.1 million income tax benefit, primarily related to equity compensation, supported reported net income despite a small pretax loss.
- Cash used in operations reflected a $65.8 million increase in accounts receivable, partly offset by increases in accounts payable and accrued liabilities. The company cited the timing of collections and payments, including early-year client ramp-up effects.
Balance sheet, liquidity and debt
- At March 31, cash and cash equivalents were $38.8 million and marketable securities were $66.9 million, totaling $105.7 million. Total current assets were $309.0 million and current liabilities were $128.7 million; working capital was approximately $180.3 million.
- Accounts receivable, net, was $198.1 million, including an allowance for doubtful accounts of $19.7 million. The allowance increased by $2.3 million during the quarter.
- Total liabilities were $135.9 million, including $8.4 million of operating lease liabilities. The balance sheet reports no outstanding borrowings; the $15 million revolving credit facility matured in June 2021.
- Management stated available cash and expected operating cash flows were sufficient for working capital and capital expenditure needs for at least the next 12 months. Cash and cash equivalents declined $52.6 million during the quarter, including net investment of $38.8 million in marketable securities.
Changes, outlook, commentary and risks
- Management attributed revenue growth mainly to more clients and covered lives, including adoption of Progyny Rx. It said COVID-19 continued to negatively affect revenue growth and could affect provider access, member utilization and client benefit spending.
- Management attributed the gross-margin decline to care-management staffing added ahead of subsequent client launches, higher stock-based compensation and temporary ramp-up inefficiencies at a new pharmacy partner.
- The filing says guidance for Q2 and full-year 2022 was issued on May 5, 2022, but the guidance figures are not included in the supplied filing text; the numerical outlook is therefore unclear here.
- Two clients represented 29% of Q1 revenue combined (17% and 12%), versus 32% a year earlier. The company also highlighted client and technology-sector concentration, competition, variable utilization, provider and pharmacy dependence, and evolving healthcare, reproductive-rights, PBM and privacy regulation as risks.
- CEO Peter Anevski succeeded David Schlanger on January 1, 2022; Schlanger became Executive Chairman. Equity awards for both executives included options, restricted stock units and performance stock units tied in part to revenue targets.
- In February 2022, Progyny entered into leases for additional New York office space extending through 2035, with rent commencement dates staggered from 2023 to 2029. The company reported no legal matters it believed would have a material adverse effect.
Important facts for investors to verify
- Review the May 5, 2022 earnings release for the actual Q2 and full-year 2022 guidance figures and assumptions.
- Track whether gross margin recovers from 19.1%, particularly as the new pharmacy partner ramps and advance staffing supports client launches.
- Monitor collections, receivables and allowance adequacy as revenue and covered lives grow, and assess whether operating cash flow improves beyond the seasonal working-capital pattern.
- Assess the scale and continuing effect of stock-based compensation on GAAP earnings, dilution and the difference between net income and Adjusted EBITDA.
- Evaluate client concentration and utilization trends, including whether client additions translate into sustained treatment volumes and pharmacy adoption.
- Consider the cash commitments from expanded office leases and the potential effects of COVID-19, regulatory changes and provider or pharmacy disruptions.