Progyny, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results. Progyny provides fertility benefits and an integrated pharmacy benefit solution to employers.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $128.7 million | $64.6 million | $250.8 million | $145.6 million |
| Gross profit / margin | $29.6 million / 23.0% | $12.0 million / 18.5% | $58.5 million / 23.3% | $28.6 million / 19.6% |
| Operating income (loss) | $11.7 million | $(1.1) million | $23.5 million | $2.4 million |
| Net income (loss) | $18.7 million | $(1.1) million | $33.9 million | $2.6 million |
| Diluted EPS | $0.19 | $(0.01) | $0.34 | $0.03 |
| Adjusted EBITDA, non-GAAP | $18.5 million | $3.8 million | $35.7 million | $10.5 million |
Q2 revenue grew 99% year over year; first-half revenue grew 72%. Fertility benefit revenue was $92.3 million in Q2 and $181.1 million in the first half; pharmacy benefit revenue was $36.4 million and $69.7 million, respectively. Management attributed growth primarily to more clients and covered lives, and noted that COVID-19 restrictions had depressed the comparable 2020 period. Gross margin improvement was attributed to pharmacy partner terms, provider contract renewals and care-management efficiencies.
Q2 net income included a $6.8 million income-tax benefit; the first-half tax benefit was $10.2 million, primarily related to equity compensation. First-half stock-based compensation expense was $11.6 million. Adjusted EBITDA excludes items including stock compensation and taxes and should be considered alongside GAAP results.
Cash, liquidity and debt
- At June 30, 2021, cash and cash equivalents were $48.7 million and marketable securities were $45.2 million, totaling approximately $94.0 million. Cash and cash equivalents declined $21.6 million from year-end 2020.
- First-half operating cash flow was negative $6.9 million, compared with positive $14.3 million in 2020. The principal use was a $69.9 million increase in accounts receivable, partly offset by higher accounts payable and accrued liabilities. Management cited growth, collection and payment timing, and revised pharmacy-partner payment terms.
- Investing cash outflow was $7.3 million, including net purchases of marketable securities; financing cash outflow was $7.3 million, including $9.3 million of employee tax payments related to equity awards.
- Current assets were $238.5 million and current liabilities $98.8 million. The company reported no debt outstanding and did not draw on its $15 million revolving credit line, which matured June 8, 2021. Management said available liquidity should support operations for at least 12 months.
- Accounts receivable, net, increased to $140.8 million from $75.7 million at year-end; the doubtful-account allowance rose to $14.1 million from $9.5 million. Accrued receivables were $40.5 million and accrued claims payable were $30.8 million.
Business developments and material comparisons
- Clients increased to 182 from 134 a year earlier; covered lives were approximately 2.8 million. ART cycles rose to 7,340 in Q2 from 3,434, and to 13,898 for the first half from 7,877.
- Two clients represented 32% of first-half revenue (17% and 15%), versus 35% in the prior-year period. Management identifies client concentration, including exposure to technology-sector employers, as a risk.
- First-half revenue growth was accompanied by operating cash use, reflecting working-capital timing and receivables growth. General and administrative expense increased 40% year over year in the first half, including higher personnel, stock-compensation and bad-debt costs; reduced legal costs partly offset the increases.
- A vendor arbitration seeking $25.0 million was settled in December 2020 for $5.75 million, without admission of liability. The company reported no other litigation expected to have a material adverse effect.
Outlook, commentary and risks
The filing refers to guidance for Q3 and full-year 2021 issued August 5, 2021, but does not provide the guidance values in the supplied text. Management cautioned that COVID-19 and variants could again affect treatment access, utilization, client spending and revenue; the duration and impact remained uncertain. It also cited risks from competition, client retention and concentration, utilization variability, provider and specialty-pharmacy relationships, healthcare and PBM regulation, cybersecurity and privacy, and its ability to sustain profitability. The company reported effective disclosure controls as of June 30, 2021 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Obtain and compare the August 5, 2021 Q3 and full-year guidance figures with subsequent reported results.
- Track receivables, allowance for doubtful accounts, collections and operating cash flow against rapid revenue growth.
- Monitor revenue exposure to the two largest clients and technology-sector clients, as well as client renewals and utilization.
- Assess whether gross-margin gains and profitability persist, considering the tax benefit and non-GAAP adjustments.
- Confirm liquidity and working-capital needs now that the revolving credit facility has matured, and monitor COVID-19 and regulatory impacts.