Progyny, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Progyny provides fertility benefits and an add-on pharmacy benefits solution to employers. At quarter-end it served 273 clients and approximately 4.322 million covered lives, compared with 191 clients and 2.935 million lives at December 31, 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $195.0 million | $128.7 million | $367.2 million | $250.8 million |
| Gross profit / margin | $43.9 million / 22.5% | $29.6 million / 23.0% | $76.8 million / 20.9% | $58.5 million / 23.3% |
| Operating income / margin | $8.8 million / 4.5% | $11.7 million / 9.1% | $8.8 million / 2.3% | $23.5 million / 9.3% |
| Net income | $8.8 million | $18.7 million | $13.7 million | $33.9 million |
| Adjusted EBITDA | $32.9 million | $18.5 million | $57.7 million | $35.7 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $8.0 million | $(6.9) million |
Q2 revenue rose 52%; fertility benefits revenue grew 37% and pharmacy benefits revenue 87%. For the first half, revenue rose 46%, with fertility benefits up 31% and pharmacy benefits up 86%. Growth reflected more clients and covered lives, including clients adding Progyny Rx. PEPM fees were 1% of first-half revenue.
Margins and GAAP earnings declined year over year despite higher revenue. Cost of services increased 53% in Q2 and 51% for the first half, reflecting higher treatment and prescription costs, staffing, and stock-based compensation. Operating expenses rose 95% in Q2 and 94% in the first half; first-half stock-based compensation increased to $48.2 million from $11.6 million. Adjusted EBITDA is a non-GAAP measure and excludes stock-based compensation, among other items.
Liquidity, cash flow and balance sheet
- At June 30, cash and cash equivalents were $54.7 million and marketable securities were $67.7 million, totaling $122.4 million in cash and securities. Current assets were $356.4 million and current liabilities $144.9 million.
- First-half operating cash flow was $8.0 million, versus an outflow of $6.9 million in 2021. A $101.4 million increase in accounts receivable was the main operating cash use; increases in payables and accrued liabilities partly offset it.
- Investing activities used $40.8 million, primarily net purchases of marketable securities; financing activities used $3.9 million. Cash declined by $36.7 million during the half.
- Accounts receivable was $229.9 million, including a $23.5 million allowance for doubtful accounts; the allowance increased $6.1 million during the half. Accrued receivables were $61.2 million and accrued claims payable $38.5 million.
- No borrowing balance is reported on the balance sheet. The former $15 million Silicon Valley Bank revolving credit line matured in June 2021. Operating lease liabilities totaled $8.2 million; the filing also describes additional office leases signed in February 2022, with future commencements.
- Management said existing cash, cash equivalents and operating cash flow were expected to fund working capital and capital expenditures for at least the next 12 months.
Changes, outlook and notable risks
- ART cycles increased to 10,392 in Q2 from 7,340; first-half cycles rose to 19,316 from 13,898. All-member utilization was lower year over year: 0.49% versus 0.54% in Q2 and 0.77% versus 0.83% for the first half.
- COVID-19 continued to negatively affect revenue growth in the first half, through potential delays in treatment and changes in member and client behavior. Management said the full effects remained uncertain.
- The filing refers to 2022 and Q3 guidance issued August 4, 2022, but the supplied filing text does not provide clear guidance figures.
- Key risks include client concentration (two clients contributed a combined 28% of first-half revenue), competition, treatment-utilization variability, provider and specialty-pharmacy dependence, cybersecurity and privacy exposure, and extensive healthcare regulation. The filing also highlights uncertainty after the Dobbs decision and state reproductive-rights laws that could affect fertility services or benefits.
- First-half tax benefit was $5.0 million, primarily associated with equity compensation; Q2 instead recorded a $0.1 million tax provision. Executive equity awards and the sharp increase in stock-based compensation are material considerations for interpreting earnings and dilution.
- Management reported disclosure controls were effective at the reasonable-assurance level as of June 30, 2022, and no material change in internal control over financial reporting during the quarter. The company said it knew of no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Obtain the August 4, 2022 earnings release or call transcript to confirm the actual full-year and Q3 guidance, which is not quantified in the supplied filing text.
- Assess whether revenue growth, client additions and pharmacy adoption can continue while utilization, gross margin and GAAP earnings trends evolve.
- Review receivable aging, collections, allowance adequacy and working-capital seasonality given the large receivables balance and first-half cash conversion.
- Evaluate customer concentration, the renewal and pricing exposure of major clients, and the impact of COVID-19, economic conditions and state reproductive-health laws on utilization and demand.
- Track stock-based compensation, equity-award dilution, and the costs and commitments associated with new office leases.