Progyny, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; financial statements are unaudited. Progyny provides fertility and pharmacy benefits solutions to employers. At quarter-end it served 188 clients and approximately 2.9 million covered lives.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $122.3 million | $98.9 million | $373.1 million | $244.6 million |
| Gross profit / margin | $28.5 million / 23.3% | $20.8 million / 21.1% | $87.0 million / 23.3% | $49.4 million / 20.2% |
| Operating income | $9.1 million | $4.8 million | $32.5 million | $7.2 million |
| Net income | $16.8 million | $4.8 million | $50.7 million | $7.4 million |
| Diluted EPS | $0.17 | $0.05 | $0.51 | $0.07 |
| Adjusted EBITDA, non-GAAP | $16.5 million | $10.0 million | $52.2 million | $20.5 million |
- Revenue grew 24% in Q3 and 53% year to date. Q3 fertility-benefit revenue rose 17% to $85.3 million; pharmacy-benefit revenue rose 43% to $37.0 million. Year-to-date increases were 49% and 62%, respectively.
- Gross margin improved 220 basis points in Q3 and 310 basis points year to date. Management cited favorable pharmacy-partner terms, provider contract renewals and care-management efficiencies.
- Net income includes income-tax benefits of $7.7 million in Q3 and $17.9 million year to date, primarily related to equity-compensation activity. These benefits materially contributed to reported earnings.
- Year-to-date operating cash flow was $17.2 million, down from $29.7 million. The $66.7 million increase in accounts receivable was a major use of cash, partly offset by increases in accounts payable and accrued liabilities. Investing activities provided $15.1 million, mainly from net sales of marketable securities; financing activities used $10.4 million.
- At September 30, cash and cash equivalents were $92.2 million, marketable securities $22.1 million, current assets $254.4 million and current liabilities $104.5 million. The balance sheet reports no debt balance; the $15 million revolving credit facility matured in June 2021. Lease liabilities totaled $8.9 million.
- Two clients generated a combined 33% of revenue in the first nine months of 2021 (18% and 15%). The comparable combined share was 35% in 2020.
Changes, outlook and notable items
- Growth reflected more clients and covered lives, plus broader adoption of Progyny Rx. ART cycles increased to 6,892 in Q3 from 5,407; year-to-date cycles rose to 20,790 from 13,284.
- COVID-19 continued to negatively affect revenue growth. Further effects remain uncertain and could arise from disruptions to clinic access, member treatment decisions, client spending or economic conditions.
- The filing refers to fourth-quarter and full-year 2021 guidance announced November 4, 2021, but the supplied filing text does not provide a clear numerical guidance range. Management stated that forecasts depend on uncertain pandemic effects, economic recovery and normalization of clinic and member behavior.
- Management said existing cash, operating cash flow and available credit were expected to support working capital and capital expenditures for at least 12 months. Cash flow can fluctuate with the timing of client collections and provider payments.
- Risks include client concentration and retention, utilization variability, competition, provider and specialty-pharmacy network dependence, credit losses, cybersecurity and privacy, and extensive, evolving healthcare and pharmacy-benefit regulation. Bad-debt expense was $7.2 million for the first nine months, versus $3.9 million in 2020; the allowance for doubtful accounts rose to $16.1 million.
- 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 potentially materially adverse in the filing.
- After quarter-end, Progyny announced that CEO David Schlanger would become Executive Chairman effective January 1, 2022, with President and COO Pete Anevski succeeding him as CEO. The filing also disclosed subsequent executive equity awards.
Important facts for investors to verify
- Whether growth and margin gains continue as treatment utilization and pharmacy volumes change, and whether COVID-related effects ease or intensify.
- How the two largest clients renew or expand their contracts, and whether revenue concentration declines.
- Whether receivables, allowance for doubtful accounts and operating cash flow improve as revenue scales.
- How much reported earnings depend on tax benefits and stock-based compensation, and how non-GAAP Adjusted EBITDA reconciles to GAAP results.
- The numerical Q4 and full-year 2021 guidance in the November 4 announcement, not included clearly in the supplied filing text, and the impact of the leadership transition and equity awards.