Good afternoon, and welcome to the Progyny Inc. Fourth Quarter 2019 Earnings Conference Call. All participants will be in a listen only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. James Hart, Vice President of Investor Relations. Please go ahead.

Thank you Chad and good afternoon everyone. Welcome to our fourth quarter conference call. With me today are David Schlanger CEO of Progyny and Pete Anevski, President, CFO and COO. We will begin with some prepared remarks and then open up the call for your questions. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about revenue, net income, cash flow, our ability to sustain profitability, our business strategy, our ability to acquire new clients and maintain existing clients, market opportunities and size, business performance, our industry outlook, financial outlook, plans and objectives for future operations and other non-historical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Progyny's growth, market opportunities and general economic and business conditions. We have based these forward-looking different statements largely on our current expectations, and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although, we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued this afternoon. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progyny.com. I now like to turn the call over to David.

Thank you, Jamie. And thank you everyone for joining us this afternoon. I'm pleased to report that we had a strong fourth quarter concluding what was a record year for Progyny in 2019. In addition to completing our IPO, we achieved our highest revenue, gross margin and adjusted EBITDA ever and our selling season yielded the greatest number of new clients and covered lives in our history. In a few minutes, Pete will take you through the numbers in more detail, but here are some of the highlights. Revenue grew 123% in the fourth quarter to $65.1 million, which was inline with our guidance. For the year, revenue grew 118% to $229.7 million making 2019 the third consecutive year where we have more than doubled our revenue. In 2019, our gross margin increased 140 basis points to 19.8% reflecting the improving economies of scale that we are achieving while we are delivering a superior level of service to our clients. Our adjusted EBITDA of $3.9 million in the fourth quarter was also in line with our guidance and an eight-fold increase from the year ago quarter. For the full year, our adjusted EBITDA of $18.3 million reflects a thirteen-fold increase in 2018 and the assisted reproductive technology or ART cycles that we manage in the fourth quarter, increased 85% from the year ago period. Overall, we are very pleased with our results for 2019 and believe we are well positioned for the future. The guidance we've issued today for 2020 targets revenue growth of between 72% to 81% for the full year, as well as the continued expansion of our margins. It is important to note that this guidance is based on our historic utilization patterns and what we are seeing as of today, and doesn't reflect any potential impacts…

Thanks David. I'll begin by walking you through the drivers for our fourth quarter and full year results and then share our expectations for the first quarter and full year 2020. Revenue at $65.1 million in the fourth quarter increased 123% as compared to the $29.2 million in the fourth quarter last year and was in line with our guidance. For the full year revenue of $229.7 million increased 118% from 2018. Looking at the components of revenue, fertility benefits revenue increased 93% from $27.8 million in the fourth quarter last year, typically $3.5 million in the current period. Over the full year, fertility benefits revenue increased 90% through $189.6 million. The growth in fertility benefits revenue in both periods was driven by the higher number of clients and covered lives. Pharmacy benefits revenue increased from $1.4 million in fourth quarter last year to $11.6 million in the current period. Over the full year, pharmacy revenue increase more than 7x from the prior year to $40.1 million. Our growth in pharmacy revenue in both periods was driven by the higher number of clients and covered lives that growth outpaced fertility benefits revenue, due to the fact that the first time Progyny RX was available for the full selling season was 2018. Our revenue in both the quarter and year 2019 benefited from having RX available for the entire 2018 selling season as RX was sold into significantly more accounts, both new and existing. As at the end of the fourth quarter, we had 87 clients representing $1.5 million covered lives just compares to 33 clients and the 720,000 members as at the end of Q4 last year. Turning to our utilization rates there were 3,782 ART cycles performed in the quarter, which is 85% higher than the cycles performed a…

We will now begin the question-and-answer session [Operator Instructions]. And the first question will be from Anne Samuel with JP Morgan. Please go ahead.

Maybe you could speak to how utilization and kind of historically relative to the first couple months of the year and what level of visibility you have kind of based on that into the guidance at this stage?

If you look at quarterly utilization year-over-year, those patterns generally trends pretty close. If you look across the business in terms of seasonal quarters. In terms of the patterns that we see and how they inform guidance, we not only use what we're seeing early in the year. So for the first, let's call it eight weeks of 2020, but we also use historical utilization as it relates to our existing client base to inform our guidance not only for the upcoming quarter, but for the full year.

Great. Thanks. And then with the lockup expiring soon have you had any conversations or updates from your larger shareholders around their plan?

Yes, the lockup expires on April 21st. So the first trading day will be on the 22nd. Our largest shareholders are Kleiner Perkins and TPG, and each firm has put in place a multi-year 10b5plan, that contemplates a thoughtful approach to reducing their large equity holdings. With respect to management Pete and I are in discussions with our tax and financial advisors, and also anticipate putting a plan in place in the future, that similarly to our large holders would also contemplate a thoughtful long-term approach to our concentrated equity holdings. But, like a typical executive plan, any plan that we would put in place would only contemplate selling a relatively small portion of our holdings in any given year.

Great, thanks very much.

Yeah. The other thing I'd add Anne, is that, we do have a bunch of other long term shareholders that are smaller. And with respect to those shareholders, if market conditions allowed we would contemplate doing a follow on to help them get out into more orderly fashion, but I think we all see the markets been a bit volatile so that was something that we will monitor as time progresses.

Great. Thank you.

The next question will be from Michael Cherny with Bank of America. Please go ahead.

Afternoon and thanks so much for taking the question. Maybe start, David, you mentioned about the guidance and not having any impact on coronavirus. I think in the time that Progyny's been around clearly has been no instance where anything is similarity. But is there anything that your providers that your doctors have seen in the past in terms of how you'll see any fluctuation volatility if there is some type of impact? I'm thinking on much smaller scale, but any local dynamics of snowstorms or anything like that. And how long they could see some disruption in the event that things get a little haywire. And it might not be the best corollary but least if there's any type of timing related volatility and utilization that we have seen in the past if there's any corollary we can look at here.

Well, so the first thing I would tell you, Mike, is that we spoken to a number of the doctors in our network. And as of now, they're not seeing any strange patterns with respect to cancellations or changes in scheduled appointment volumes, etcetera. So they're seeing normal activity. And by the way, we're also seeing amongst our members normal activity. Obviously, if any particular, geography has the local health authorities tell people to stay home. Obviously, that could have a temporary impact with respect to people getting treatment in that geography. In the past whether, you know, when there's been other issues like you know, the SARS outbreak or something. People in the -- when the acute issue has resolved itself, people continue to get treatment because obviously, it was still the time for them to have a child and all their personal financial and professional issues were pointing to that being the right time to have a child. So again we're-- we're not seeing anything now, the doctors aren't seeing anything now. And, again, people have a child when it's the right time for them. The other thing I would add is that, those fertility clinics are not located in hospitals, they are private clinics. So when our members are receiving treatment, they don't have to go to a hospital where they may have concerns about other sick people being there.

Let me just add one more thing there Mike. When we look back at when the SARS hits the US, and it was 2012-2013, middle of 2012 through early 2013. And you'll have the CDC data and the number of cycles, oddly enough in those two years versus the two prior years. The cycles actually grew in the US then declined. So that's another indicator that something like that. I don't know if that's exactly similar to coronavirus. But something that widespread didn't have an impact relative to just overall cycles. That's the only other thing that we could point you to just sort of [indiscernible] if you will in terms of what's happening or may not be happening.

And then shifting gears a little bit, as you wrap up the end of the year, you move forward into 2021 selling season. The one of the things I know that you've discussed in the past is the viability and the strength of your sales force. Can you maybe talk about how the sales message continues to evolve as you have more and more customers and particularly customers coming from such a wider degree of various different sub-sectors, how that changes or augments or expands the sales strategy and especially with some of the history of having Progyny RX now for a more run rate period of time. I guess just thinking about how the sales force goes to market and what's evolved over the last couple of years as your business has shot up in growth rate pretty quickly.

I think that given that a lot of our value is based upon the outcomes we generate and as we've had, as we've had more and more companies, more and more covered lives in numbers and companies from varying industries and geographies, it certainly reinforces the message and provides additional evidence that our value proposition really applies across, again, all different types of industries, all different types of employers, all different types of geographies. So again, what we're seeing the growth of our business just reinforces all those messages, but it's, largely the same value message that we've been talking about and that you're certainly familiar with. So again it's more validation for why our program is better. Why it provides employers a more cost effective solution, why employees continue to have a better experience. And as we evolve as a company and have more experience, we've shown we can actually improve the employee experience. So again, just more reinforcing of many of the same messages. Now the other thing is when you go out and sell large employers, they're always interested to know who else has the benefit and who else are you serving. And the more companies that you work with, the more so quote unquote reference accounts you have so that they get more comfortable to benefit. They also were looking to remain competitive with each other and in their industry with respect to the robustness of their benefits. So again, there is this kind of network effect that we've talked about before within an industry where you sell a few employers in those industries, other employers in the same industry are looking to have similar benefits. And the last thing I would say is that, the adoption of Progyny RX continues to be strong. And I think we've disclosed 75% of customers take the benefit when they first sign up. We've had good success upselling those customers and again, it's more validation of others doing what you may be considering doing as a potential buyer of our services.

The next question will be from Sarah James with Piper Sandler. Please go ahead.

Thank you. And I apologize if there's a little overlap. I had some technical difficulties in the beginning of the Q&A. But 2020 guide is better than we expected and I'm hoping to understand a little more of the assumptions going into revenue guidance? So any change on utilization or client size there. Then I know some of your customers, we had talked about putting off the RX decision while they transitioned their core health care PBM contracts. So any details on follow through with those specific accounts, if you've had any traction in adding on the RX benefit?

So I'll take the second question first. So as it relates to upsells and the RX benefit. Yeah, we did have a good upsell season if you will, relative to RX. And we also had a favorable start day acceleration, if you will with one of them. And so one of the things that's contributing to the higher guidance for the full year is that one of our upsell clients that took RX was originally planning to do a midyear and ended up beginning of the year. And so that's a favorable to us. The second piece that's contributing to the guidance is we are seeing slightly better utilization than we had planned both from our new clients as well as our existing clients. It's real slight, but the math adds up to, has an impact relative to the year. But it was favorable relative to what we had planned. The way we do these things and we use historical experience by industry, adjusting for known demographics at each new client and do our best guess in terms of expectations for new clients. And, generally speaking they fall out within a range as an overall cohort for new clients, but sometimes slightly favorable, sometimes not so far they're slightly favorable relatives what we planned when we rolled up all those new expected clients for the year.

And to follow on that you talked about your 2020 book changing in mix, with a lot of the sales coming from the non-traditional sectors. And I imagine it would continue even into '21. So, how do you think about forecasting utilization under the mix shift dynamic and would you anticipate utilization going up because of this mix shift?

I think -- so the important point about the comment around our expanding base of industries plus our client base applies not only to this half sales year, but applied to the prior sales year for client that went live in '19. I think that the point that we were trying to make is that the earliest years had the highest concentration of tech lines, and we continue to see expansion as other industries. It doesn't mean we're still not getting tech clients. We're getting them overall. Let me just make that point first. The second point relative to engagement rates, overall and what's to expect is because tech companies generally have a younger employee demographic with a larger household income. utilization rates tend to be higher with them than with other industries, when you calculate it as a percentage of total overall covered members. So as a result, what we're seeing slight, but on a blended basis, slight drop in utilization rate year-over-year. Sometimes the mix could impact that. But the differential that we expect means that or slight increase the differential that we expect for the 2020 year, you know, could be a slight increase, but the reality is that the difference is so small as we get bigger and bigger, more and more clients, one more covered lives, it should just be pretty close to what it's been plus or minus, a couple basis points each year based on actual utilization that happens. So there won't be big fluctuations, relative to or adding clients across industries. And as we grow bigger and bigger, it would just be more reflective of more similar to the overall base.

That's great. Thank you.

[Operator Instructions]. The next question comes from Ralph Jacoby with Citi. Please go ahead.

Thanks. Good afternoon. You mentioned and talked about your competitive advantages and particularly getting an early lead focused on fertility benefits. I guess the question how important is it at this point to expand service lines and sort of accelerate that? You've obviously done well on the pharmacy side. Just trying to get a sense of how important it is to sort of widen out, if you will at this stage. It's still an early stage, but the sort of further out that lead that you have?

We think we can continue to grow at a very strong rate with our current solution. Nevertheless, we are, as we've talked about previously studying possible extensions to our service offering, particularly in adjacent areas and other areas of women's reproductive health. We think those opportunities will make both our benefit stickier and provide better member experience, but also provide opportunities for additional revenues. So certainly we're going to continue to look at those things and do what we think will be accretive to the business, but we can continue to grow again at high rates, given the solution we currently have in place. Remember there are, as we've talked about before 8,000 potential employers were 2% to 3% penetrated this solution saves them real dollars. It provides a better member experience. There's all kinds of other benefits to the employers with respect to better employee productivity, less absenteeism, helps their diversity and inclusion programs. So there's a lot of reasons why employers bring us on and all those reasons continue to be very valid and there's a lot of employers still out there that can benefit from all those things.

And then just final question. I wanted to ask about the gross profit margin in the quarter. You know, didn't show as much leverage on the strong top line and you know, it goes down to look like it contracted a little bit year-over-year. I think you mentioned in your prepared remarks headcount add. So I just wanted to hopefully get you guys to just flush out in terms of the adds and sort of the leverage sort of on our line as we think about not just '20 but beyond?

Yeah I would encourage you to look at the full year and any quarter in particular, the fourth quarter is going to have the most variability relative to timing of new hires, preparedness for the following year in terms of how many people we add it et cetera. So the full year gross margin is more indicative of ability and the improvement there is more indicative of our ability to improve gross margins overall. The fourth quarter result delta between the margin versus whether you compare, you know, prior year or any recent period is small and absolute dollars relative to the reality of what we achieved overall for the full year. I would also encourage you to look at the, the overall guidance for next year and our ability to expand, I believe that we could expand margins again based on that guidance. And embedded in there is expanding gross margins, again across the business, including in gross profit. And so it is really nuance within the quarter itself, not a lot to read into there. So, so that's why we sort of put the comment or prepared remarks around the impact of it. Because I know we looked at the percentages and see a smaller percentage, but in absolute dollars it's really small with the overall year that you should look at.

Okay, fair enough. Thank you.

Ladies and gentlemen, this concludes our question and answer session and thus concludes today's call. We thank you for joining Progyny's fourth quarter 2019 earnings conference call. You may now disconnect your lines. Have a nice evening.