Business context and reporting period
Progyny, Inc. provides fertility-benefit management and an optional integrated pharmacy-benefit solution to U.S. employers. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022; comparisons are with the same 2021 periods unless noted.
At September 30, Progyny served 282 clients and approximately 4.567 million covered lives, compared with 191 clients and 2.935 million covered lives at December 31, 2021. Progyny Rx was available to 84% of clients.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $205.4 million | $122.3 million | $572.6 million | $373.1 million |
| Gross profit / margin | $46.0 million / 22.4% | $28.5 million / 23.3% | $122.8 million / 21.5% | $87.0 million / 23.3% |
| Operating income / margin | $11.3 million / 5.5% | $9.1 million / 7.4% | $20.0 million / 3.5% | $32.5 million / 8.7% |
| Net income | $13.2 million | $16.8 million | $27.0 million | $50.7 million |
| Diluted EPS | $0.13 | $0.17 | $0.27 | $0.51 |
| Adjusted EBITDA | $35.0 million | $16.5 million | $92.6 million | $52.2 million |
Q3 revenue rose 68%; fertility-benefit revenue increased 52% to $129.3 million and pharmacy-benefit revenue rose 106% to $76.1 million. For the nine months, revenue increased 53%, with fertility benefits up 38% to $367.0 million and pharmacy benefits up 93% to $205.6 million.
Profitability did not keep pace with revenue. Nine-month operating income fell 38% and net income fell 47%. Gross margin declined 180 basis points for the nine-month period and 90 basis points in Q3. Management cited increased stock-based compensation among care-management personnel as a principal margin pressure, partly offset by care-management efficiencies. Nine-month stock-based compensation was $71.5 million, versus $18.7 million a year earlier. Income-tax benefits were also lower year over year, primarily reflecting less equity-compensation activity.
Net cash provided by operations was $28.9 million for the nine months, versus $17.2 million in 2021. The period included a $133.2 million increase in accounts receivable, partly offset by increases in accounts payable and accrued liabilities. Investing activities used $42.7 million, mainly reflecting net purchases of marketable securities; financing activities used $5.1 million. Cash and cash equivalents were $72.5 million, and marketable securities were $68.5 million, at September 30.
Total current assets were $401.9 million and current liabilities $156.9 million. The filing reports no outstanding debt at period-end; the former $15 million Silicon Valley Bank revolving line matured in June 2021. Management stated existing cash, marketable securities and operating cash flow should support working capital and capital expenditure needs for at least 12 months.
Material changes, outlook, and risks
- Growth reflected a larger client and covered-life base and broader adoption of Progyny Rx. ART cycles performed increased to 11,086 in Q3 from 6,892; reported all-member utilization was 0.49%, compared with 0.51% a year earlier. Nine-month utilization was 1.00%, compared with 1.07%.
- Sales and marketing expense rose 151% in Q3 and 162% for the nine-month period; general and administrative expense rose 57% and 67%, respectively. The filing attributes much of the increases to personnel costs and higher stock-based compensation; bad-debt expense also increased.
- COVID-19 and related restrictions continued to negatively affect revenue growth, with possible further effects on treatment access, utilization, clients and providers. Management said it continued to monitor the impact.
- The filing says guidance for Q4 and full-year 2022 was issued on November 3, 2022, but the numerical guidance is not provided in the supplied filing text.
- In October 2022, the manufacturer of Menopur temporarily paused deliveries pending FDA approval of a manufacturing-process change. Management anticipated a temporary effect on revenue and results, but did not expect member utilization to be affected because clinicians could use alternative medications; a prolonged shortage could have a further negative impact.
- Risks highlighted include client concentration (two clients represented a combined 26% of nine-month revenue), exposure to technology-industry clients, utilization variability, competition, provider and specialty-pharmacy relationships and supply, evolving healthcare and reproductive-rights regulation, cybersecurity and privacy, and economic conditions. The company reported no legal proceedings it believed would materially adversely affect its financial position or results.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2022. A new executive-and-employee retention award grant was approved on October 18, after quarter-end: 3,706,800 stock options and 207,400 RSUs.
Important facts for investors to verify
- Review the November 3, 2022 release for the actual Q4 and full-year guidance, and compare it with reported results.
- Assess whether receivables and collections convert revenue growth into sustainable operating cash flow; accounts receivable reached $258.0 million, up from $134.6 million at year-end 2021.
- Track gross-margin trends and the scale and future effect of stock-based compensation on GAAP earnings and dilution.
- Monitor utilization, client additions and renewals, pharmacy-benefit adoption, and revenue exposure to the two largest clients.
- Check subsequent disclosures on the Menopur supply interruption and any related revenue or treatment effects.