Progyny, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; year-over-year comparisons are to the same 2022 periods. Unaudited consolidated financial statements. Progyny provides fertility and add-on pharmacy benefits to employers and their members.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $279.4 million | $195.0 million | $537.8 million | $367.2 million |
| Gross profit / margin | $60.6 million / 21.7% | $43.9 million / 22.5% | $119.3 million / 22.2% | $76.8 million / 20.9% |
| Income from operations | $15.2 million | $8.8 million | $30.2 million | $8.8 million |
| Net income | $15.0 million | $8.8 million | $32.7 million | $13.7 million |
| Diluted EPS | $0.15 | $0.09 | $0.33 | $0.14 |
| Adjusted EBITDA (non-GAAP) | $47.5 million | $32.9 million | $93.8 million | $57.7 million |
Q2 revenue increased 43% year over year: fertility benefits revenue rose 36% to $172.7 million and pharmacy benefits revenue rose 56% to $106.6 million. For the first half, revenue increased 46%, with fertility benefits up 39% and pharmacy benefits up 61%. Management attributed growth primarily to more clients and covered lives, including client additions to Progyny Rx.
Q2 gross margin declined 80 basis points year over year, reflecting cost-containment savings shared with clients and added care-management investment. First-half margin improved 130 basis points, primarily from care-management efficiencies, partly offset by those cost-containment efforts. Operating expenses grew more slowly than first-half revenue; stock-based compensation was $62.6 million for the six months, versus $48.2 million a year earlier. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, stock-based compensation, taxes, and interest.
Cash, liquidity and obligations
- At June 30, 2023, cash and cash equivalents were $170.6 million and marketable securities were $111.9 million, totaling $282.5 million. Working capital was approximately $367.2 million, based on reported current assets and current liabilities.
- First-half operating cash flow was $97.0 million, versus $8.0 million in 2022. The filing cites earnings and noncash adjustments, as well as favorable pharmacy-partner payment terms and timing of collections and payments; accounts receivable increased $34.7 million.
- First-half investing cash outflow was $42.8 million, mainly net purchases of marketable securities; financing cash outflow was $3.7 million, mainly employee tax withholding on equity awards. Cash increased $50.5 million to $170.6 million.
- The balance sheet reports no borrowings or other financial debt. It reports operating lease liabilities of $19.6 million, including $1.5 million current and $18.1 million noncurrent. The company also disclosed future facility lease payments.
- Management believes cash, marketable securities, and operating cash flow will fund working capital and capital needs for at least the next 12 months. It also says resources are expected to support long-term contractual obligations, subject to business and market factors.
Business trends, outlook and risks
- At June 30, Progyny served 384 clients and approximately 5.305 million covered lives, versus 288 clients and 4.585 million lives at December 31, 2022. First-half ART cycles rose to 27,942 from 19,316; all-member utilization was 0.85%, versus 0.77%.
- One client represented 13% of first-half 2023 revenue. In first-half 2022, two clients represented 17% and 11%, respectively. Management identifies client concentration, technology-industry exposure, retention, new-client acquisition, and utilization and treatment mix as important risks.
- The filing says the company issued Q3 and full-year 2023 guidance on August 3, 2023, but the numerical guidance values are not provided in the supplied filing text. Management cautions that actual results may differ and identifies factors including economic conditions, COVID-19, medication availability, utilization, and client activity.
- Other key risks include competition; maintaining fertility-provider and specialty-pharmacy networks; drug supply, pricing and rebates; healthcare and PBM regulation; reproductive-rights legal developments; cybersecurity and privacy; and changes in client or member demand. Management says COVID-19 negatively affected first-half 2022 revenue growth; future impacts remain uncertain.
- Management reported no known legal proceedings expected to have a material adverse effect on financial position or results. Disclosure controls were considered effective as of June 30, 2023, and no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Obtain the August 3, 2023 earnings release or call transcript to confirm numerical Q3 and full-year guidance; the supplied filing text does not provide clear values.
- Assess the sustainability of revenue growth and gross margins, particularly the difference between Q2 margin contraction and first-half margin expansion.
- Review cash conversion and receivable quality, including the increase in accounts receivable and doubtful-account allowance, and determine how much of the operating cash-flow improvement reflects timing or payment-term changes.
- Monitor client concentration, client renewals and expansion, covered-life growth, utilization, and adoption of Progyny Rx.
- Consider the effect of $62.6 million in first-half stock-based compensation on reported profitability and dilution; outstanding shares increased to 95.2 million from 93.3 million at year-end 2022.
- Evaluate exposure to regulatory changes, provider and pharmacy capacity, medication supply and pricing, and cybersecurity and privacy incidents.