Good afternoon, and welcome to the Progyny Inc. First Quarter 2020 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 James Hart, Vice President of Investor Relations. Please go ahead.

Thank you, Andrea and good afternoon everyone. Welcome to our first 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 before we open 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 our positioning to successfully manage the impact of COVID-19 and the associated economic uncertainty on our business, our financial outlook for the second quarter of 2020, the impact of COVID-19 on our second quarter results and beyond, our expectations on the timing of recovery of the fertility industry and the resumption of fertility services at provider clinics, our number of members and the impact of COVID-19 on our clients, and our ability to acquire new clients and maintain existing clients, the efficacy of our remote working environment, our 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 statements 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 periodic and current reports filed with the SEC, including in the section entitled risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as well as our press release and 8-K that were 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 press release, which is available at investors.progyny.com. I would now like to turn the call over to David.

Thank you, Jamie and thank you everyone for joining us this afternoon. We hope that each of you your families and your loved ones continue to be healthy and safe. I'm pleased to open today's call by reporting that everyone at Progyny is doing well. COVID-19 has had an unprecedented impact around the world. As the pandemic began to unfold, we made the decision to work from home starting in mid-March. As people described later, we were well prepared to make this shift to a virtual work environment and we are extremely proud of how our team has managed this transition. They have not only continued to provide the same high quality service that our clients and members expect, but also maintain their motivation and commitment to Progyny’s mission. On this call, our focus will be to help you understand the specific impacts that COVID has had on the facility industry and our business, including our members and clients, as well as how we have responded in managing the business and the return to normalcy that we are beginning to see. When we last spoke with you on March 5 and issued financial guidance, the pandemic was still in its earliest stage in the U.S. and our clinics weren't seeing any meaningful impacts to their patient volumes. Over the course of the subsequent two weeks, COVID was declared a pandemic, state and local authorities began issuing stay-at-home orders, and then on March 17 the American Society for Reproductive Medicine issued guidelines recommending that fertility clinics should cease initiating new fertility treatments. The significant majority of the clinics in our network chose to adhere to ASRMs guidelines, and our volume of fertility treatments and dispensing of the related medications declined significantly over the latter part of the quarter. Given all of…

Thanks, David. I'll begin today by reviewing our move to a virtual environment, which was a seamless transition because we already have the right tools and systems in place to accommodate a virtual office and working remotely for every employee. Our cloud-based IT and fastest to architecture provided us with the flexibility we needed to be able to work effectively in a remote environment. We already had a robust business continuity plan in place that was implemented so that all of our teams have been able to perform their functions in a HIPAA secure environment without any compromises to data security, functionality, or any degradation to levels of service. As a result, there was no disruption to our day-to-day processes, or to our business controls. In addition, all the services we provide to our members, clinics, and clients continued as normal without any interruption. Our PCAs, for example, continue to have access to all the tools and resources they need to continue supporting members while working from home. As David mentioned, we've kept the Progyny team intact, despite the drop in treatment in volumes at the back end of the quarter. We made this decision in anticipation of the resumption in services at the clinics, as well as the corresponding ramp up to normal treatment levels. As that ramp happens, our care management team will be ready to support our members and the clinics. We had the flexibility to make this decision given the strength of our balance sheet. As of March 31, we had 91.6 million of cash, an increase of 11.3 million for our balance sheet at December 31, and total working capital of approximately 120 million with no debt. Because of our substantial cash bounce, our near term positive cash flow, zero debt and an untapped $15…

[Operator Instructions] And our first question comes from Sarah James of Piper Sandler. Please go ahead.

Thank you, and great quarter guys. You know, I'm really encouraged by the conversations that you're having with new customers, and the pipeline growth that you're seeing, can you give us a little bit more color on that? Do you think the mix of industries might be better? Particularly, I'm wondering if you end up more tech weighted that has a younger population and usually a higher utilization count. Is that something that could be impactful as you grow in 2021? And just more broadly, how this scope of conversations you're having this year stack up to this time last year?

Hi Sarah, it’s David. As we said on the call, we are having a lot of very positive conversations. And the good news is that we've been diversifying our customer base across industries for the last several years. And even in this very unusual situation, there are a lot of companies that are really well-positioned to, to emerge in the pandemic very strong and our head strong business is through it and they are not just tech companies. So, certainly we're trying to focus on all companies from industries that we believe are well-positioned. So, you know, beyond the tech industry, there's industries, like consumer packaged goods and pharmaceuticals, and financial services that are extremely strong, and that are, you know, kind of business as usual from a selling perspective, and are receptive to talking to us. So, obviously, you know, you want to be sensitive to, you know, a particular industry and company situation, we're doing that, and as we said on the call, having, you know, success getting in front of prospective clients.

Great. And the clarity that you gave on the trough in March at 15% was helpful, and then you said it's been improving week by week, where do you guys stand now compared to normal this time of year?

Well, it's a difficult number to put out there, and I'm not going for one reason. We've seen three sequential weeks of, you know, double digit growth off of that trough. And it's been continuing, but sort of the latest week, if I just gave you that number, so it doesn't make a trend, right? But we have our expectations in terms of Q2 and sort of the minimum number that we put out factors in, you know, a reasonable expectation that continued acceleration, not at that same rate, but a reasonable expectation that we're real comfortable with based on sort of all the things that we're seeing be it prescribing and dispensing, be it scheduled appointments, be it call activity, etc. And so, I think that's probably the most responsible answer I can give you, relative to details on what we're seeing.

The only thing I would add Sarah is that, it's obvious by what we're seeing, and as we said in the prepared remarks that our members are anxious to get back into treatment. Their physicians are anxious to get their practices opened, and both of those things are happening simultaneously. And that's all driving that acceleration in member activity. So, they're all good signs, given what's happening in other areas of the economy.

Thank you.

Our next question comes from Anne Samuel of JP Morgan. Please go ahead.

Hi, guys, thanks for taking the question. I was wondering maybe if you could touch a little bit on what your providers are seeing in terms of patient apprehension about coming back into the office. And how quickly do you think that the providers can work through that backlog of volumes and maybe what that means for cadence in the back half of the year? Thanks.

Yeah. I'll take the – I’ll take the second part of the question first in terms of capacity. We had, you know, some more comments, address clinic capacity just in general, right. So, one of the things that create capacity for U.S. patients and Progyny members is the fact that, you know, a good percentage of volume in our business, not dissimilar to sort of what U.S. population resides is East and West Coast. East and West Coast clinics do a significant majority of medical tourism from, you know, patients either from Europe or Asia, and that volume for some clinics is 20%, 30%, but not insignificant. Obviously, with travel bans going on and everything going on in the world, you know, that creates capacity in and of itself. The second thing is that the clinics have been – are prepared to do everything they can from an extended hours perspective in order to give confidence to members as they come in for treatment, in order to be able to handle the volume, so that they spread out the hours that they're going to operate to be able handle you know, any backlog that they have to work through relative to, you know, the paused treatments that happened during this period. And lastly, their expectations are that their cash business will suffer a bit during this time period, because even if you still have a job, but if you don't have coverage, you're probably going to be a little bit more conservative with spending money versus covered members. So, their expectation is that the ramp back to normal levels will be, you know, first and foremost for them from their perspective covered members, then cash members, then any medical tourism. So, all of that sort of creates inherent capacity relative…

That makes sense. That's really helpful. And then I guess on the expenses side, how should we be thinking about how much of your expenses are variable? You talked about kind of holding the line on some of your expenses that you're prepared for the recovery in volumes, but as your revenue comes down, how much of that is variable to serve as [an opportunity]?

You'd have probably imputed right. When you think about what we put out for a minimum for Q2, it’s almost breakeven on an EBITDA perspective at a $45 million revenue line, you know, our historical gross margin, obviously is going to come down a little bit relative to this level of revenues. So, you could probably impute it. You don't break the number out, and haven’t, but at the end of the day, I think what we thought was a meaningful data point was putting out essentially what is breakeven revenue for us, which is coincidentally what we are looking at for Q2.

Great. Thanks very much, guys.

Our next question comes from Michael Cherny of Bank of America. Please go ahead.

Good afternoon. Thanks for all the color so far. I want to go back a bit to the – some of the comments you made about utilization and ramping capacity, you know, one of the things that I'm curious about and dive a little deeper, can you talk through some of the activities, not just from a time perspective and how long they're open, but, you know, are there any hindrances or barriers that your fertility network providers have to worry about? We constantly hear about the lack of PPE available for professionals, for patients, or any of those in place? And is there anything you can do to your side to help them as they think about revamping their practices beyond just helping them manage the patient flow?

Yeah. There aren't any concerns on PPE. So, I'll start with that. And we surveyed, we've talked to many and surveyed, you know all of our largest clinics around the country and so there isn't concern as it relates to keeping their employees safe and their staff safe as they are providing treatment and having the equipment to do that. So, that's the first thing. They're not concerned around restrictions as it relates to supplies of any kind. They're simply concerned around, making sure which is why they're ramping it slowly from a patient volume perspective, they have a demand. They're telling to have demand, but they're scheduling it slowly. They're more concerned about making sure that their staff has operationalized all the safety protocols that they're putting in place, and ensuring that those run smoothly before they continue to schedule more and more patients is sort of basically what they're telling us as a limitation, short-term that they believe as they operationalize and work through these protocols, you know, will create more capacity, it’s in their controls [indiscernible].

Thanks, Pete. And then just one other question, I think you did a great job highlighting your strong liquidity cash position. I know in the past, you've talked about evaluating M&A, and other potential services you could look to bring into the fold, is there anything that the organization's learned through the COVID outbreak and through the utilization drop off you saw that opens your eyes about other potential services or activities that makes sense to be within your business, whether it's other high touch client model or you know, anything to help providers? Anything that this outbreak has really uncovered in terms of where there's other holes across your channel that you think you can do a better job helping with them what's currently in the market?

This is David. I think that the things that were driving our thinking a couple months ago are still driving rethinking and the opportunities to both make our service, you know, a more fulsome and stickier from both a member and client perspective, remain similar with respect to women's reproductive health and many of the things we talked about before, you know, supplemental mental health benefits for people going through this. Obviously, this has been a particularly stressful time, but those types of things, some of the vertical opportunities we talked about before, where we're outsourcing services, we can bring it out. They all make sense to us, and I don't believe that the COVID situation really exposed any weaknesses in our service. Now, from an M&A perspective, the COVID situation may have created some more opportunities for us, given the fact that some companies may be more financially strapped than they were before and suffering some financial hardship. There may be some assets on the market that from a valuation perspective might start making more sense. So, that's kind of how we're looking at enhanced M&A opportunities or there is some damage, you know companies that were damaged financially, but that still have a good service and product or product that might make sense.

David, maybe – just a follow up to make sure, I might want to hone down even a little bit further, you know, the whole world appears to be moving to some type of virtual care and telemedicine. Your patient care advocates have long been at the forefront of that, are there any other tools that you can see institutionalizing for them? That just because of how much of healthcare being now delivered virtually, that suddenly now becomes another opportunity for Progyny?

Look, I think you're right that our PCAs and a big portion of our business model embrace the notion of, you know, kind of remote care very early. You know, over the last years, we've automated many of those interactions that need to be automated and kept on a human level, the ones that really matter and really move the needle from a member perspective and having a good experience. So whether it's the emotional support piece, whether it's, you know, really, really getting good clinical education and support around making the right decisions. I think we found the right balance you know, between what you need to automate, what you should keep, you know, with the human touch, and the reality is that fertility treatments are always going to be delivered by doctors and medical procedures. So, that that will be somewhat of a limiting experience, but, you know, having said that, you know, I talked before about, you know, enhancing the mental health support, you could, you know, we certainly as we think about that, think about telemedicine and telemedicine platforms will do that. So, I don't know if that answered your question Mike or not.

It certainly helps. Thanks so much David.

Our next question comes from Ralph Jacoby of Citi. Please go ahead.

Thanks. Good afternoon. Yeah. So, it sounds like expectations for clinics in your network to be up and running for the end of June. I was hoping you could just give us some sense there, you know, rough ballpark of what percentage of the clinics are sort of open and available to see patients today, just wondering how sort of how much of a ramp from where we are today to get to sort of full by the end of June.

They're all open and available. They're just not open and available to full suite of service, right. So, many of them were open and available early in April, and up until now, basically doing telemedicine consoles. And even those were partial consoles, because the diagnostic services as needed for consoles weren't being done during this time period. There – so when I talk about them being fully open with their full suite of services, it's really doing all treatments that they normally would do by the middle of May, and then ramping up the volumes, you know, taking into consideration the new protocols that they put in place by the end of the quarter. And so, that's probably the best way I can, I can frame that. It's hard to say what percentage because they're controlling sort of the capacity, if you will, right now, in terms of getting through backlog, just by virtue of making sure that their protocols are operationalized as I mentioned before. They all will tend to be up and running, again by mid-May, but that doesn't mean that their volumes will be going through there, like they normally see. It just means that at that point, they'll be ramping up volumes in terms of what they're scheduling, in anticipation of, you know, creating still, you know, confidence with any other members that that come through there and any – [indiscernible] you know, that talk to their friends, etc. And so, that's probably the best way to think about it, but in terms of being open, open, all of them are going to be, you know, expect to be open with a full set of services by the middle of May. That doesn't mean the volumes will be there. And that's really the important part that we try to make sure that everybody understands.

Okay, fair enough. And then I just want to ask about the pharmacy benefits really outperformed our model. I think you talked about penetration going up to 70% at this point, any change in initiatives or focus there or appetite, you know, seems high, obviously? And then anything in the quarter in terms of maybe pull forward of some of that, you know, related to fertility benefits, or is that not the right way to think about it? Thanks.

No. Yes, it is what I would think about it. So the answer is the percentage of clients that we put out, not all clients are equal, some are larger, some are smaller, there was a pull forward in an earlier launch than originally expected for one of our larger clients that was an existing client that as an up-sell took the pharmacy benefit. That combined with a client in other words client that went live in Q2 of last year, and I was cycling, in Q1 of this year versus the prior year that had the RX benefit, is why the increase in pharmacy revenue is as significant as it is.

Okay, that's helpful. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to James Hart for any closing remarks.

Well, thank you, Andrea. And thank you everyone for joining us today. Please don't hesitate to reach back out if you have any questions, and we look forward to speaking with you again soon.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.