PROGYNY, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes and other financial information included elsewhere in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year
ended
Overview
We envision a world where anyone who wants to have a child can do so. Our mission is to make dreams of parenthood come true through healthy, timely and supported fertility journeys. Through our differentiated approach to benefits plan design, patient education and support and active network management, our clients' employees are able to pursue the most effective treatment from the best physicians and achieve optimal outcomes.
Progyny InNetwork
Progyny InNetwork Provider Clinic
National Averages Provider Clinic Averages
for All Provider Averages for Progyny
Outcome Clinics for All Patients Members Only(3)
Single embryo transfer
rate(1) 64.0 % 67.1 % 90.1 %
Pregnancy rate per IVF
transfer(1) 53.0 % 54.7 % 61.4 %
Miscarriage rate(1) 18.6 % 18.4 % 13.8 %
Live birth rate(2) 42.2 % 43.6 % 52.9 %
IVF multiples rate(2) 9.9 % 9.1 % 2.8 %
(1) Calculated based on the
SART, 2018 National Summary Report, finalized in 2021.
(2) Calculated based on
published in 2021.
(3) Calculated based on the 12-month period ended
Fertility Benefits Solution. Our fertility benefits solution includes providing members with access to effective and cost-efficient fertility treatments through our Smart Cycle plan design. Smart Cycles are proprietary treatment bundles designed by us to include those medical services available to our members through our selective network of high-quality fertility specialists. Medical services under our Smart Cycles include everything needed for a comprehensive fertility treatment cycle, including all necessary diagnostic testing and access to the latest technology (such as, in the case of in
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vitro fertilization, or IVF, preimplantation genetic testing). We currently offer 17 different Smart Cycle treatment bundles, which may be used in various combinations depending on the member's need. Each Smart Cycle treatment bundle has a separate unit value (i.e., some have fractional values and some have whole values). Our clients contract to purchase a cumulative Smart Cycle unit value per eligible member. These can range from one to an unlimited unit value. Members, in consultation with their or their Patient Care Advocates, or PCAs, can choose their preferred provider clinics within our network and utilize the specific Smart Cycle treatment bundles necessary for the treatment pathway they determine throughout their fertility journey.
In addition, we provide care management services as part of our fertility benefits solution, which include active management of our selective network of high-quality fertility specialists, real-time member eligibility and treatment authorization, member-facing digital solutions, detailed quarterly reporting for our clients supported by our dedicated account management teams and end-to-end comprehensive concierge member support provided by our in-house staff of PCAs. Clients can also add adoption and surrogacy reimbursement programs as part of this solution.
Progyny Rx. We went live with our integrated pharmacy benefits solution in 2018. Progyny Rx can only be purchased by clients that purchase our fertility benefits solution. Progyny Rx provides our members with access to the medications needed during their fertility treatment. As part of this solution, we provide care management services, which include our formulary plan design, simplified authorization, assistance with prescription fulfillment and timely delivery of the medications by our network of specialty pharmacies, as well as medication administration training, pharmacy support services and continuing PCA support.
Our Clients. We currently have contracts to serve over 180 employers in
Revenue Model
Our clients primarily contract with us to provide our fertility benefits solution and, where added on by our clients, our Progyny Rx solution. Our revenue has both a utilization-based component and a population-based component, as follows:
Utilization Component. Clients pay us for the fertility benefits and Progyny Rx
solutions utilized by their employees. With respect to the fertility benefits
solution, we bill clients for Smart Cycles in accordance with our bundled case
rates, which vary by the type of fertility service rendered and clinic
location. Case rates include all third-party fertility specialists,
? anesthesiology and laboratory services, as well as all of our care management
services. With respect to Progyny Rx, we bill the client for the fertility
medication dispensed to their employees in connection with the authorized
fertility treatments. Medication fees also include our formulary management,
drug utilization review and cost containment services and other care management
services.
Population-Based Component. Clients who purchase our fertility benefits
solution also typically pay us a per employee per month fee, or PEPM fee, which
is population-based. This allows us to provide access to our PCAs for fertility
? and family building education and guidance and other digital tools to all of
our members, regardless of whether they ultimately pursue fertility treatment.
PEPM fees represented 1% and 2% of our total revenue for the three months ended
Our revenue in a given year is determined by both the utilization of our
fertility benefits and Progyny Rx solutions by our members and the number of
members enrolled in our clients' benefits plans. Each year, we contract with new
clients for our fertility benefits solution and, where added by the client, our
Progyny Rx solution. Given that the majority of our clients contract with us for
a
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Similarly, for existing clients, any changes in plan designs are typically
elected by the end of October so that clients can inform their employees of the
benefits during the open enrollment period ahead of a
Key Operational and Business Metrics
In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
Member and Client Base. Our addressable market is primarily large self-insured
employers. There are approximately 8,000 employers in
Importantly, as we have continued to grow, we have meaningfully diversified our client base across more than 30 different industries currently from just two industries when we launched our fertility benefits solution in 2016. We are expanding our client base within each industry and have an industry-specific strategy that enables us to most effectively target our addressable market. Because our clients within an industry compete with each other for employees, we believe our solutions are increasingly viewed as an important way for them to differentiate from, or remain competitive with, one another. Additionally, we believe that our expanding presence has resulted in a heightened awareness of the need to offer fertility benefits and has informed the market of the value we provide to our clients and our members, which we believe also helps facilitate growth. In addition, we are continuously utilizing our established client relationships to evaluate other potential fertility solutions that could benefit our members and simultaneously drive growth. Our ability to attract new clients will depend on a number of factors, including the effectiveness and pricing of our solutions, offerings of our competitors, the effectiveness of our marketing efforts to drive awareness and the demand for fertility benefits solutions overall. We define a client as an organization for which we have an active contract in the period indicated. We count each organization we contract with as a single client including divisions, segments or subsidiaries of larger organizations to the extent we contract separately with them.
As of March 31, As of December 31,
2021 2020
Client Tier (Members) Clients Members Clients Members
Up to 2,500 39 69,000 23 38,000
2,501 - 10,000 91 469,000 74 393,000
10,001 - 50,000 41 894,000 30 645,000
Greater than 50,000 8 1,287,000 8 1,259,000
Total 179 2,719,000 135 2,335,000
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Benefits Utilization. A key driver of our revenue is the number of members we
serve and the rate at which they utilize their fertility benefits. As our client
base has grown, our membership has grown from approximately 110,000 members in
2016 when we launched our fertility benefits solution to approximately 2.7
million members as of
The following table highlights the number of assisted reproductive treatment, or
ART, cycles performed for
Three Months Ended
March 31,
2021 2020
Assisted Reproductive Treatment (ART) Cycles(1) 6,558 4,443
Utilization - All Members(2) 0.54% 0.46%
Utilization - Female Only(2) 0.47% 0.41%
Average Members 2,657,000 2,052,000
Represents the number of ART cycles performed, including IVF with a fresh (1) embryo transfer, IVF freeze all cycles/embryo banking, frozen embryo
transfers and egg freezing.
Represents the member utilization rate for all services, including but not
limited to, ART cycles, initial consultations, IUIs and genetic testing. The
utilization rate for all members includes all unique members (female andmale) who utilize the benefit during that period while the utilization rate (2) for female only includes only unique females who utilize the benefit during
that period. For the purposes of calculating utilization rates in any given
period, the results reflect the number of unique members utilizing the
benefit for that period. Individual periods cannot be combined as member
treatments may span multiple periods.
Impact of COVID-19 on our Business
The COVID-19 pandemic has significantly impacted various markets around the
world, including
Employee safety is our first priority, and as a result, we have implemented a remote working policy for all of our employees. Although we re-opened our corporate offices for a small group of employees, while implementing additional safety measures including testing, masks and social distancing protocols, the majority of our employees continue to work remotely. We are also working closely with all of our clients, members, providers and other external business partners. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate monitor liquidity, as necessary, and ensure that our business can continue to operate during these uncertain times.
The outbreak and preventative measures taken to contain COVID-19, especially in
the first half of 2020, negatively impacted our members' access to care due to a
temporary unavailability of the full range of fertility treatments at our
provider clinics. On
The COVID-19 pandemic did continue to have a negative impact on our revenue
growth during the three months ended
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The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, future results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including, without limitation, new information that may emerge concerning COVID-19; the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the economic impact on local, regional and national markets. To the extent that the markets we serve experience increased cases of COVID-19, state or local governments may reinstitute measures to control its spread, which could again negatively impact our members' access to care. We will continue to evaluate the nature and extent of these potential impacts to our business, results of operations and liquidity.
For additional information on the various risks posed by the COVID-19 pandemic, please read Part II, Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenue
Revenue includes fertility benefits solution revenue, pharmacy benefits solution revenue and PEPM fees.
Fertility Benefits Solution Revenue
Fertility benefits solution revenue primarily represents utilization of our fertility benefits solution. Our client contracts are typically for a three-year term and pricing for this solution is established for each Smart Cycle treatment bundle, based in part on when the client first became a client and the number of members covered under the solution. Fertility benefits solution revenue includes amounts we receive directly from members, including deductibles, co-insurance and co-payments associated with the treatments under the fertility benefits solution. Revenue is recognized based on the negotiated price with our clients and includes the portion to be paid directly by the member. Revenue is recognized when the Smart Cycle is completed for a member. Revenue is also accrued for authorized Smart Cycles rendered based on member appointments scheduled with a fertility specialist in our network but for which no claim has yet been reported.
Pharmacy Benefits Solution Revenue
Pharmacy benefits solution revenue primarily represents utilization of Progyny
Rx. For clients who contract for the fertility benefits solution, we offer an
add-on, separate, fully integrated pharmacy benefits solution designed by us.
Progyny Rx provides our members with access to our formulary plan design,
simplified authorization, prescription fulfillment and timely delivery of the
medications used during treatment through our network of specialty pharmacies,
as well as provides our members with medication administration training and
other pharmacy support services. Prescription drugs are dispensed by our
contracted mail order specialty pharmacies. Revenue related to the dispensing of
prescription drugs by the specialty pharmacies in our network includes the
prescription fees negotiated with our clients, including the portion that we
collect directly from members (deductibles, co-insurance and co-payments). The
contractual fees agreed to with our clients are inclusive of the cost of the
prescription drug from our specialty providers, less any applicable discounts,
as well as the related clinical and care management services. Revenue from these
arrangements is recognized when the drugs are dispensed. This solution was
introduced in the marketplace in the third quarter of 2017 and went live with a
select number of clients on
Per employee per month (PEPM) fee
Clients who purchase our fertility benefits solution also pay us a population based PEPM fee which provides access to our PCAs for fertility and family building education and guidance and other digital tools for all of our covered members, regardless of whether or not they ultimately pursue fertility treatment. We earn a PEPM fee for the majority of our clients. Revenue from the PEPM fee is billed and recognized monthly based upon the contractual fee and the number of employees at that specific client for that month.
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Cost of Services
Our cost of services has three primary components: (1) fertility benefit services; (2) pharmacy benefit services; and (3) vendor rebates.
Fertility Benefit Services
Fertility benefit services costs include: (1) fees paid to provider clinics within our network, labs and anesthesiologists; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions: Provider Account Management, PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Our contracts with provider clinics are typically for a term of one to two years.
Pharmacy Benefit Services
Pharmacy benefit services costs include: (1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by our specialty pharmacy partners; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions: PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Contracts with the specialty pharmacies are typically for a term of one year.
Vendor Rebates
We receive a rebate on certain medications purchased by our specialty pharmacies. Our contractual arrangements with pharmacy program partners provide for us to receive a rebate from established list prices, which is paid subsequent to dispensing. These rebates are recorded as a reduction to cost of services when prescriptions are dispensed.
Gross Profit and Gross Margin
Gross profit is total revenue less total cost of services. Gross margin is gross profit expressed as a percentage of total revenue. We expect that gross profit and gross margin will continue to be affected by various factors including the geographic location where treatments are performed, as well as pricing with each of our clients, provider clinics, labs, specialty pharmacies and pharmaceutical companies, all of which are negotiated separately, have different contracting start and end dates and durations which are not coterminous with each other. Additionally, staffing levels necessary to deliver our care management services will continue to grow as we continue to add clients and their associated members.
Operating Expenses
Our operating expenses consist of sales and marketing and general and administrative expenses.
Sales and Marketing Expense
Sales and marketing expense consists primarily of employee related costs, including salaries, bonuses, commissions, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization for those employees associated with sales and marketing. These expenses also include third-party consulting services, advertising, marketing, promotional events, and brand awareness activities. We expect sales and marketing expense to continue to increase in absolute dollars as we continue to invest and grow our business.
General and Administrative Expense
General and administrative expense consists primarily of employee related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and
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amortization for those employees associated with general and administrative services such as executive, legal, human resources, information technology, accounting, and finance. These expenses also include third-party consulting services and facilities costs. We anticipate that we will incur additional costs for employees and professional fees and insurance and related third-party consulting services on an ongoing basis as a public company and to support growth in the business.
Other Income (Expense), net
Other income (expense) includes investment income and interest income (expense).
Benefit (Provision) for Income Taxes
We are subject to income taxes in
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of revenue for those periods:
Three Months Ended
March 31,
2021 2020
(in thousands)
Statements of Operations Data:
Revenue $ 122,133 $ 81,024
Cost of services(1) 93,226 64,422
Gross profit 28,907 16,602
Operating expenses:
Sales and marketing(1) 4,014 3,267
General and administrative(1) 13,086 9,904
Total operating expenses 17,100 13,171
Income from operations 11,807 3,431
Other income (expense), net (11) 314
Income before income taxes 11,796 3,745
Benefit (provision) for income taxes 3,370 (116) Net income
$ 15,166 $ 3,629
(1) Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
2021 2020
Cost of services $ 1,287 $ 337
Sales and marketing 681 237
General and administrative 3,066 1,475
Total stockbased compensation expense
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