Progyny, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 7, 2021. Progyny provides employer fertility benefits and an integrated pharmacy benefits solution. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Progyny served 179 clients and approximately 2.719 million covered lives at quarter-end, up from 135 clients and 2.335 million covered lives at December 31, 2020. It performed 6,558 assisted reproductive treatment cycles, versus 4,443 a year earlier. The company reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $122.1 | $81.0 | Up 51% |
| Fertility benefit revenue | $88.9 | $59.4 | Up 50% |
| Pharmacy benefit revenue | $33.3 | $21.6 | Up 54% |
| Gross profit / margin | $28.9 / 23.7% | $16.6 / 20.5% | Gross profit up 74%; margin expanded 320 basis points |
| Operating expenses | $17.1 | $13.2 | Up 30% |
| Operating income | $11.8 | $3.4 | Operating margin approximately 10% versus 5%, as presented by the company |
| Net income | $15.2 | $3.6 | Includes a $3.4 tax benefit in 2021; 2020 had a $0.1 tax provision |
| Diluted earnings per share | $0.15 | $0.04 | — |
| Adjusted EBITDA | $17.3 | $6.7 | Non-GAAP measure |
| Cash from operations | $0.5 | $12.1 | Lower mainly due to a $43.5 increase in accounts receivable and payment timing |
At March 31, cash and cash equivalents were $29.8 million and marketable securities were $77.1 million. Current assets were $227.8 million and current liabilities $101.0 million. The $15 million Silicon Valley Bank revolving credit facility was undrawn; the company was in compliance with its covenants. The facility was due to mature in June 2021. Total liabilities were $110.0 million, including lease liabilities; the filing reports no funded line-of-credit borrowings.
Material changes versus Q1 2020
- Revenue growth reflected a larger client and covered-life base and increased adoption of Progyny Rx. The company also noted that Q1 2020 revenue had been affected by COVID-19 treatment suspensions, which complicates the comparison.
- Gross margin improved with favorable pharmacy partner terms, provider contract renewals and care-management efficiencies. The prior-year margin was also affected by retaining care-management staff during the treatment pause.
- Operating expenses increased, including higher personnel and stock-based compensation costs. Stock-based compensation rose to $5.0 million from $2.0 million.
- Receivables increased materially with growth and seasonal client onboarding; management said operating cash flow was also affected by changed payment timing with pharmaceutical partners.
Outlook, commentary, risks and unusual items
- The filing states that management issued Q2 and full-year 2021 guidance on May 6, 2021, but the supplied filing text does not provide the guidance figures. Management cautioned that forecasts depend on uncertain pandemic effects and the pace at which clinics and patients return to normal volumes.
- Management believed available cash, marketable securities, operating cash flow and the credit facility would fund working capital and capital expenditure needs for at least 12 months. It continued to monitor COVID-19 effects; treatment access and revenue growth remained exposed to renewed restrictions, member delays and economic uncertainty.
- Key risks include client concentration (two clients generated a combined 32% of Q1 2021 revenue), utilization variability, competition, dependence on fertility clinics and specialty pharmacies, healthcare and pharmacy-benefit regulation, cybersecurity and privacy, and the ability to sustain profitability.
- A vendor arbitration seeking $25 million was settled in December 2020 for $5.75 million without admission of liability. No other litigation was identified as expected to have a material adverse effect. The 2021 quarter’s tax benefit, primarily related to equity compensation activity, materially supported reported net income.
- Disclosure controls and procedures were assessed as effective at the reasonable assurance level as of March 31, 2021; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Review the May 6, 2021 earnings release or guidance materials for the actual Q2 and full-year guidance ranges, which are not stated in the supplied filing text.
- Track receivable collections, allowance for doubtful accounts, and operating cash flow, including the effects of client onboarding and pharmacy-partner payment timing.
- Monitor renewal, pricing and revenue exposure for the two largest clients, as well as covered-life growth and fertility and pharmacy utilization.
- Confirm the status and any refinancing or replacement of the revolving credit facility approaching its June 2021 maturity.
- Assess whether gross-margin improvement persists and distinguish operating performance from tax benefits and non-GAAP Adjusted EBITDA adjustments.