Good afternoon ladies and gentlemen and welcome to the Progyny's Fourth Quarter 2020 Earnings Call. At this time, all participants have been placed in a listen-only mode. Then the floor will be questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, Katherine and good afternoon, everyone. Welcome to our fourth quarter conference call. With me today are David Schlanger, CEO of Progyny; and Pete Anevski, President and COO; and Mark Livingston, CFO. 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 but not limited to statements about our financial outlook for the first quarter and full year 2021. The impact of COVID-19 on our business, clients, member activity and industry operations, our ability to acquire new clients and retain existing clients, our market opportunity, size and expectation of long term growth, our corporate governance plans, business performance, industry outlook, financial outlook, strategy, future investment plans and objectives, and other non-historical statements as further described in our press release that was issued this afternoon. 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 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 most recent 10-Q. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, net income as adjusted, net income per share as adjusted. 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're pleased to report that we had a strong fourth quarter concluding another year of record performance where we achieved the highest levels of revenue, profitability, and operating cash flow. Mark will take you to the financials in greater detail in a few moments, but I'd like to begin with just a few of the highlights. In the fourth quarter, revenue grew 54% over the year ago period. We also surpass $100 million in quarterly revenue for the first time in our history. For the full-year, revenue grew 50%. We achieve this strong result despite the severe impact to our volumes in Q2 because of the pandemic. Our gross margin in 2020 increased to 20.3% demonstrating the significant efficiencies we realized as we continue to scale our operation. Adjusted EBITDA in 2020 increased 77% to $32.4 million, and we also generated a record $36 million in operating cash flow in 2020. And finally, during the fourth quarter our average member base increased sequentially from the third quarter by nearly 100,000 covered lives, confirming that the significant majority of our clients are successfully managing the impacts of COVID or the number of cases are flourishing and continuing to add headcount. The strength of these results achieved against the backdrop of an unprecedented global health crisis are due to a combination of factors including the essential and time sensitive nature of fertility treatments along with the resilience of our members in their pursuit of care, the quality and diversity of our customer base and the support that we and our provider network delivered to members who were facing new challenges created by the pandemic. As a result of that support one of our most significant accomplishments last year relates to…

Thank you, David, and good afternoon everyone. I'll begin by walking you through our fourth quarter and full year 2020 results, and then provide our expectations for 2021. In the fourth quarter revenue grew 54% to $100.3 million. As David mentioned this was the first quarter where we exceeded to $100 million in revenue. And to put that into perspective, our first $50 million order was only a year and a half ago. For the full year revenue of $344.9 million increased 50%. Turning to the components of the top line. Medical revenue increased 40% in the fourth quarter to $74.7 million and increased 34% over the full year to $253.6 million. Our growth and medical revenue in both the quarter and the year were driven by our higher number of clients and covered lies, though was previously reported our full year revenue was partially offset by lower utilization, most significantly for the second quarter when fertility clinics temporarily closed at the onset of the pandemic. Pharmacy revenue increased to 121% in the fourth quarter to $25.6 million. Over the full year, pharmacy revenue increased 128% to $91.3 million. The growth in pharmacy revenue was primarily driven by the increase in the number of clients who have the RX benefit, as compared to a year ago. We continue to see more clients taking the Progyny RX benefit each year. In the 2018 selling season, 68% of our newest clients took the integrated benefit. That increased to 75% in 2019, and then to 84% of the new clients that are launching this year. Of all the clients today 73% now have Progyny RX. While, we are very pleased with the progression of pharmacy adoption over the past few years, there remains future upsell opportunity to more than a quarter of the…

Thanks, Mark, and good afternoon everyone. At the midpoint of the 2021 guidance, Mark just provided, you can see that we expect our top line growth rate to accelerate slightly this year as compared to the 50% growth we achieved in 2020. This reflects how our mission to help people have healthy successful pregnancies is more relevant today than it has ever been. And how the need for employers to offer a better fertility solution continues to grow. As we think about 2021 and beyond, we believe Progyny is in its strongest ever competitive position, and what continues to be a largely under penetrated market opportunity. Starting first with the market, although it's not clear what if any lasting societal changes may result in the pandemic. We remain confident that all the macro trends that have been contributing to our growth remain intact, including the high and increasing rates of infertility as people continue to differ family building to later in life, the need for companies to recruit and retain talent, and to demonstrate inclusiveness and equality in their workplace, and the need for employers to use their healthcare dollars in the most efficient way possible and to do so, while also optimizing employee health. The fertility market today is large and growing at a double digit rate. And as we look to capitalize on our opportunities, we feel extremely well-positioned across every function of Progyny. Last quarter, we discussed how certain prospects in our sales pipeline were so focused on their COVID response plans, and that they were unable to make any benefit changes in 2020 or we're choosing to concentrate only on specific types of benefits targeted at COVID related issues, such as enhanced mental health support. Despite having more of these deferred accounts or not nows, in…

Certainly, ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Ralph Giacobbe. Your line is live.

Great. Good afternoon. You had said, prior revenue guidance that at least 525, the lower end of the range, obviously a little bit below that. Maybe you can just help what are the factors there that cause you maybe to be a little bit more conservative on the lower end of the range?

Yes, I'll take that. So the estimates that we gave more prior to seeing utilization patterns early in the year. As we talked about in the past, early utilization patterns are the most instructive relative to what we might expect for the year. One thing to point out, even though it may not sound like a lot is, is earnings -- year end earnings are almost two weeks ahead of where they were last year, that's a little bit less experienced that we get to see early in the year. So really was the guidance that we thought was the most responsible based on the utilization that we are currently seeing. The guesstimates that we had, relative to the expectations that we talked about on our last earnings call were really around how many new lives we added, new clients that we added. But then there are variables that impact that a little bit, right, to the extent that any clients are going a little bit off cycle and adjust the expectations from those clients are part of that. And again, utilization patterns. But it's pretty much in line with what we said relative to not being able to see what all those new clients that we added, we're actually going to do from a utilization perspective, even though we have some idea relative to their information that we get from them.

Okay. Sorry, fair enough. And then, I wanted to hit on EBITDA, because that number actually came in a little bit of ahead of what we were modeling. Any details there on sort of maybe what's providing a little bit more of that boost to profitability, whether it's business makes or other factors within the cost line item or simply leverage?

Yes, So the EBITDA in Q4 was slightly better than what we expected. Mark talked about a little bit of a favorable true-up as it related to year end true-ups estimates for IBNR. And that was probably the biggest factor. Other than that was pretty much in line with what we expected.

Okay. Did you quantify what was that IBNR amount?

It was small, around a million or something like that.

Okay. All right. That's it for me. Thank you.

Your next question is coming from Michael Cherny. Your line is live.

Great. Thanks so much and thanks for all the colors so far. If I could just pick ever so slightly, I guess maybe follow up on Ralph's question regarding the guidance. You had talked about, if I recall, roughly 90% utilization in terms of baseline that was predicated on where that initial, at least $525 million was. What is baked into the guidance here? And along those lines, in the early days, at least I know it is early, but are you seeing any geographic variability based on different members in different parts of the country?

Well, I'll take the second question first. We're not seeing any variability that if I look at what we've been seeing what I'll call since the summer, and throughout the end of the year and into the early weeks of this year, as I look at the existing clients, we're not seeing any change relative to variability from what we're already seeing, or what we might expect as the calendar year turns. So no real change there as it relates to depress utilization, if you will, in any geographic area, that might be coming from COVID, or anything like that. As it relates to the utilization levels, the 90% number we have talked about, which was as far back as -- when we reported on Q2 results and started talking about expectations for Q3, that instead up to more in the range of 95%, 96% when we reported our Q3 results. And what we've talked about since then is we -- is a normal utilization level now that we have insight into. And unfortunately, we don't have any more insight into anybody that may still be waiting, or concerned about COVID, and not pursuing treatment. But the majority of people in our covered lives are. And so all we could talk to you is sort of current utilization levels, which is what we're seeing and what we used to put out our guidance for this year.

Thanks, Pete. That's certainly helpful. And then if I may just ask another one here. You talked about some of the range in maternity services that you could theoretically look to introduce. Is there a desire to have something that's either or the difference between organic versus inorganic? And you noted some of the services that are currently out on the market right now. I guess, where do you see the competition falling short? Or what could Progyny do better based on the strong relationships that you already have?

Hey, Mike, this is David. Okay. Look, I think as we talked about in the prepared remarks, there are certainly opportunities to help our customers, address issues they're seeing across their employee base. And those relate to certain issues during the maternity journey. And again, as I said in the prepared remarks, everything from preconception, all the way through return to work. As we assess those opportunities and work with our clients about the problems they're having and do the current or the existing solutions address those problems, we'll always go through and maybe this gets the organic versus inorganic growth, we'll always go through the exercise of thinking about potential new solutions as whether we buy build or partner. And we'll always look at kind of the most capital efficient way to get into a new opportunity and a way to kind of do it biggest, best and fastest. So -- and those opportunities are consistent with what we've talked about in the past. And we without getting into more detail than kind of we need to now since this is still at the assessment stage, I would say that there are -- within or within that entire kind of continuum of the woman's reproductive health journey, there are certainly issues with all the solutions that are in the marketplace, and we see opportunities to provide, in certain cases a better set of services. And when we have more specifics to tell you about, we will provide those. So again, we're still in the assessment stage right now, and we don't want to get ahead of ourselves and provide specifics until we're ready to announce something.

Okay, Thanks, David.

Your next question is coming from Stephanie Davis. Your line is live.

Hey, guys, thank you for taking my questions and congrats on the quarter.

Thank you.

Not to call a high 40 growth rate conservative. But I wanted to ask what consumptions are in your 1Q guidance. Just in light of the year-over-year improvement you're seeing in female utilization and all the Medicare script data coming in very strong. Is there any cushion or baking into COVID, or anything like that we should think about?

There's not any cushion. Again, all I can tell you is, it's based on what we're currently seeing right now through the first, let's call it six weeks of the year. And it's the best information that we have. And then what we use is, is past history of experience, utilizing that early data to project what we expect not only for the quarter, but really for sequential quarters and to the year. We obviously layer into that expectations around timing of new client launches, et cetera. And there are a couple that are little bit later in the year. But nonetheless, most of it is really related to utilization patterns. So, I would definitely not call it conservative. I would call it as we all sort of put out guidance, our best view and most accurate view what we expect.

And just adding on to that. I mean, we normally see in the first half of the year -- we see revenues build through the year. So our first quarter is typically our lowest quarter, again, absent last year, which was affected by COVID. But if you go back over time, you'll see Q1 is lower Q2. So the first half of the year tends to be maybe 47.5% of the total for the year. So that's also what you're seeing when you're looking at Q1 guidance versus the rest of the year.

Yes. The upper end of the Q1 guidance range is in excess of 50% growth.

All right. Understood. How do I take my shot like everyone else?

Thank you.

In your prepared remarks, you did talk about broadening the scope of the Progyny offering a little bit, just given how fertility is really different during a pandemic than it is in a normal environment. Are there any stem-tech [ph] startups or adjacencies that caught your eye? Or is there any potential to expand your behavioral health offering, as it becomes a much more stressful process?

What's the best -- David sort of alluded to before. The best thing I can tell you is, 2020 was definitely a year of managing through the pandemic. 2021, in addition to sort of taking advantage of the opportunities that we have, with what we have in the space that we're in now is a year of real focus around those adjacencies and opportunities, including looking at some of the events that's out there, looking at any strategic acquisitions we could do. But also looking at things we can grow organically, right? And so for us, the best thing we can tell you is as the year progresses, and as we make progress in assessing those areas, and when we're in a position to share more about what we think makes sense for us, we'll share it. But really no more color to add in that area. It's a bit premature for us to talk anything beyond that considering where we are in that assessment.

Okay. I understand. All right. Well, see you tomorrow, guys.

Thank you.

Your last question is coming from Glen Santangelo. Your line is live.

Yes. Thanks for taking my question. Hey, I just wanted to go back to some comments you made regarding the selling season. If I look back to the 3Q comments you made last quarter, you were suggesting at the time that client retention was near 100%. But you were starting to see clients buy more Smart Cycles, more clients sort of upgraded to the Progyny Rx offering? Could you maybe give us some stats or anything looking back to last year selling season in terms of what the legacy clients were doing, given I understand the limitations around adding new clients related to COVID. But what were your existing clients doing the last selling season?

Well, I would say this in general, the one thing we sell from our existing clients last selling season was no reduction in benefits. So they were not looking to skinny down their benefit and some effort to control costs. And the changes that we saw were -- if there were changes were to make the benefit more robust. And that could be take a number of forms. They may add Smart Cycles, because they're starting to realize that if they had too Smart Cycles, a number of their members were capping out on their Smart Cycles and had not gotten a successful pregnancy, it could be adding Progyny Rx they didn't have it in the past, because they really wanted the integrated program and understood the benefits of it. It could be adding egg freezing if they didn't have that. So, those are the types of changes we saw. We don't quantify how much of our growth comes from organic, which would be both upsells, and the addition of new lives by our existing customers, through hiring from more acquisition, and how much it comes from new sales. But in the past, certainly a non insignificant amount of our growth has come from organic growth to existing customers. And that's a combination again, of both their internal growth, but also upsells.

And maybe when you look at the year end 2020, any sort of updated statistics about what percentage of the employers you think are offering fertility benefits at this point, maybe on the large side, and the small side. Maybe how that stat, trended through 2020? What you think could be a catalyst to really ramp the penetration there?

Yes. There's not great data on this. And we've talked about this in the past. There are certain studies that have been done, particularly by the benefit consulting community, the most recent of those studies were done at the beginning of 2020, or released at the beginning of 2020. But the trend has been fairly clear that over the last several years, the percentage of large employers that provide fertility benefits, and the level of benefits varies greatly. But the percentage of employers that provide fertility benefits has grown pretty steadily. Few years ago it was around 25%, it's approaching probably 50% now. And most of the studies that have surveyed large employers, point to continued growth in the number of employers that are going to have the benefit. One study even said that by 2022, which is amazingly is only a year from now, that two-thirds of large employers will have fertility coverage. And looking a few years past that it should be 75%. So the trend is in the right direction. And you see that even in our own sales, we have typically had somewhere around two-thirds of our customers come to us having had some legacy coverage, their carrier, one-third never had any coverage at all. Last year was similar trends, but it was about 40% had no coverage before. So that's very indicative that 40% of our customers have never had coverage before. Consistent with that trend, every year more and more employers are realizing that fertility benefits coverage isn't a nice to have, but really have to have a central piece of their fertility -- of their other benefits package for lots of reasons. Fairness to their female workforce, a desire to have more positive DEI initiatives, as we talked about in the prepared remarks. But again, this is a trend that we think has been well established over the past handful of years and will continue for the next handful of years.

Okay. Thanks for the comments.

We have no further questions in lines at this time.

Good. Thank you, operator.

Thank you so much, everyone for joining us today. We'll look forward to speaking to you next quarter.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.