Good afternoon, ladies and gentlemen and welcome to the Progyny Incorporated First Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your 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, Catherine. And good afternoon, everyone. Welcome to our first quarter conference call. With me today are; David Schlanger, CEO, Progyny; 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 both the second quarter and full year of 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 forward 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 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 periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10-K. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available @investors.progyny.com. I will now like to turn the call over to Dave.

Thank you, Jamie. And thank you, everyone for joining us today. We are pleased to report a solid start to the year, reflecting record quarterly revenue, strong utilization and the continued expansion of our margins. Mark will walk you through the details of the results in a few moments. But here are a few of the highlights. Revenue grew 51% over the first quarter of last year to $122.1 million. Average members in the first quarter grew nearly 30% from the year ago period to 2.7 million, reflecting not only the addition of our newest clients, but also the organic growth we've seen within our existing base, as our clients have continued to expand their workforce over the last year. ART Cycles in the quarter grew 48% to nearly 6,600, which is the most cycles we've ever managed in the quarter. Female utilization ticked up on a sequential basis in the fourth quarter of 2020 to 0.47%, demonstrating that fertility continues to be a priority for those who need treatment in order to start to build their families, even against the backdrop of the ongoing pandemic. And lastly, adjusted EBITDA in the first quarter more than doubled to $17.3 million and our margins increased over the first quarter last year. In addition to these strong results, during the quarter, we also successfully ensured that the onboarding for the 44 new clients who went live with their Progyny benefit went seamlessly. From an operations perspective, the first quarter will always be critically important to us, because unlike businesses that grow ratably throughout the year, the substantial majority of our new clients begin their progress with us on January 1st. As a result, we need to prepare in advance for a step function increase overnight in our business volumes, which demands that…

Thank you, David. And good afternoon, everyone. I'll begin by walking you through our first quarter results and then provide our expectations for the second quarter and the full year. In the quarter, revenue grew 51% over the first quarter last year to $122.1 million. This growth was primarily due to a higher number of clients and covered lives, though as we previously reported, revenue in the prior year period was negatively impacted by lower utilization when fertility clinics temporarily closed at the onset of the COVID-19 pandemic. Breaking down the components of the top line, medical revenue increased 50% over the first quarter last year to $88.9 million. Pharmacy revenue increased 54% in the quarter to $33.3 million. While we continue to be very pleased with the progress of pharmacy adoption. Since we launched the service in 2018. There remains a future upsell opportunity to more of a - more than a quarter of the client base. As of the end of the quarter, we had 179 clients, representing an average of 2.7 million covered lives during the quarter. This compared to 132 clients and an average of 2.1 million covered lives in the first quarter last year, reflecting growth of approximately 30% in covered lives over the past year. Taking into account the clients who launched their benefit following the close of the quarter, we now have 180 clients, each with at least 1000 covered lives. Turning now to our utilization metrics, there were 6,558 ART Cycles performed during the first quarter. This represents our highest ever quarterly total of cycles and reflects a 48% increase as compared to the first quarter of last year. The female utilization rate this quarter, which is what really drives our financial results was 0.47%. This compared to 0.411% utilization from a…

Thanks, Mark and good afternoon, everybody. I'll begin with some qualitative commentary about our selling season as it relates to generating new business. We spoke to you last quarter even though the selling season hadn't yet begun, the preliminary discussions we've had with benefit consultants and prospects revealed their hopes that 2021 would be a more normal year in terms of their ability to evaluate new benefits and make changes to their health plans. Storm season has now begun and although it remains very early at this point, we are pleased to report that so far, things are feeling more normal. It appears as though companies are increasingly able to think about what the world looks like for them and their employees' post-COVID. A year ago, many of these companies were distracted as they work through their COVID mitigation plans. As these distractions ease, companies should be in a better position to make decisions about their benefits than they were at this time last year. At this point in the season, we're actively selling both pitching business to new prospects as well as reengaging with the differed accounts, who have given us the not now response in the previous selling seasons. Our sales team is building pipeline, responding to RFP opportunities, engaging directly with accounts and fielding introductions made by the benefit consultants on our behalf to potential customers. The early activity we've seen through these combined channels so far has been very positive. And pipeline additions in early sales commitments are favorable to prior year, and in line with our internal expectations at this point in the sales year. As a reminder, the go-to sales - sales season each year is to grow the absolute number of new clients and cover lives each year. Obviously, last year's season became…

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Stephanie Davis with SVB Leerink. Your line is live.

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

Thanks, Stephanie.

Thank you.

Thank you.

So I think anyone on this call would be hard pressed to say they haven't at least been invited to a DNI initiative at their firm. With that in mind, how does this impact your messaging and maybe the salesforce education process for the upcoming selling season?

So it's a good question, Stephanie. So you know, we at Progyny kind of since the beginnings of the company, have been very focused on equity. And as it relates to fertility benefits and making sure that our customers understood that our benefit is designed to work for all employee populations, and not just have equity across employee populations, but make sure that there was equity also, with respect to the utilization of the benefits. So by having a cycle-based benefit versus dollar-based benefit, you know, we can make sure that everybody gets the same number of chances to build their family, regardless of how complex their cases or where they live in the country, given that pricing did vary so dramatically by region. But we've really kind of - we've continued to evolve, how we help companies from the debt, diversity, equity and inclusion perspective. One of the things that's really come out in the past year is that, and that people are talking about that, you know, there are historically had been very significant ratios, you know - race differences, as it relates to healthcare and healthcare outcomes. And that also applies to fertility. So with fertility, we know that people in the black community have the higher incidence of infertility, a significantly higher incidence of infertility, but also, they have a lower incidence of seeking treatment for infertility. So we're making sure that in addition to the structural things we've done, to make sure that our benefit is available to everyone, and that spans employee populations, we're making sure that when we support members, that we're supporting members in a culturally competent and sensitive way. So we're training our, you know, we've trained our staff and we're working on ways to help address those racial disparities, as it relates to health, access to health care and healthcare outcomes. So and, and, and obviously, this is a conversation that we have with our customers and prospective customers, we know these initiatives are important to them. And we're - and again, we're trying to help them with their initiatives. And as I just said, you know, we're continuing to evolve as the requirements for D&I continue to evolve with us. So and, you know, beyond kind of how we've trained the staff, you know, we're also doing things like creating content, podcasts, webinars, live events that deal with some of these issues, so that our members can be educated about these issues and understand how they can actually help themselves address some of the, you know, some of the disparities that have existed, but clearly, you know, the trend and focus on DEI and Corporate America, and as it relates to benefits is an important, you know, tailwind to the business. And again, so one that we very comfortably fit into.

And just a follow-up on that one. For the sales process. I imagine it's also probably a little bit different than just a feet on the street model. There's different channels then you could talk to about sort of D&I and inclusion initiatives. Have you explored any of these channels? Or is that something that's going to be kind of a future opportunity?

No, no, we certainly, you know, and again, it's been part of the DNA of the company. You know, we're comfortable having conversations with Chief Diversity Officers, for instance, and our corporate clients do that. So certainly, we're making sure that our clients understand how adopting a benefit, like the Progyny benefit can help them further their own DI initiatives. So it's really been part of where we've been from the very beginning. But, you know, as you know, as awareness around other issues continues to surface, we continue to evolve and make sure we're addressing those issues also.

Super helpful. Thank you, guys.

Thank you.

Your next question is coming from Anne Samuel of JP Morgan.

Hi. I was hoping. Great, thank you. I was hoping you could provide a little bit more detail on the margin improvement, really nice incremental margins this quarter. What changed with the pharmacy terms? And then as we think about your high-teens longer-term target, is there upside to that now? Thanks.

By the way, welcome back. Nice to hear you again.

Thank you.

No problem. So whaddon versus the original guidance that we put out in early March, we were in a process around the entire supply chain around our pharmacy program. And we had RFPs out there. And so that process didn't culminate until really the end of the quarter, beginning of - you know part of it at the end of the third quarter, part of the beginning of the fourth quarter. And the long, short that is, is that ended up being favorable to what we had insight into earlier -

First quarter, second quarter.

Yes, sorry, first quarter second quarter, apologies. And was favorable to what we had visibility into when we put out our guidance. So that's where the improvement came from. And then to the extent that we're able to continue that type of improvement, yeah, it could raise sort of the long-term view of where we might get to ultimately, but as you know, we haven't really sort of updated that long-term view, except for when we were, you know, on our roadshow, gone public, what we'd rather do is continue to point out, you know, the leverage and expansion in margins that we're able to achieve, and continue to focus on the overall business and what we could do, as opposed to sort of just setting targets, but it's certainly indication that that could be the case.

That's really great. And then, you know, maybe just on utilization, how do we think about what happened to those cycles that maybe didn't happen during COVID? You know, you're back to baseline now. But you know, is there any potential for those lost cycles to come back?

You know, there always is the potential right. The question is and the challenge has always been for us, you know, how do we quantify how many lost cycles there were? How many of them have already come back? How many of them are coming back slowly, et cetera? And so the difficulty is, you know, we don't know exactly, because we only know those folks that we talked to not the members that we don't talk to, that are pausing on their own and not calling us. And so it's really difficult to get visibility into, you know, how much there may still be, you know, members that are sitting on the sidelines, if you will, either they add a need for the moment, and how many more of that may come back, as vaccines roll out, et cetera. So I wish I could quantify that if I could, I would bake it into the numbers. But certainly possible. I just don't know exactly how we want to quantify that.

That makes sense. Thanks, guys.

Your next question is coming from Ralph Giacobbe from Citi. Your line is live.

Hey, thanks. Good afternoon. So I guess, obviously strong top line number in the first quarter guidance for the second quarter also looks like it's ahead. But you did keep top line guidance unchanged, keep this open anything to sort of call out to reconcile, as I would think, you know, 2Q could have been sort of the pause quarter, if you will, on hesitancy due to vaccinations. But that doesn't seem to be the case. So anything else in the second half that sort of hold things back a little bit?

Nothing. Nothing at all to read into relative to our Q2 guidance, and our full year guidance versus our Q1 results. We're not holding back. Well, we're projecting based on normal utilization patterns that we see and how they give us indication as to what we might expect, in the back half of the year. Historically, we there is, you know, first half second half sort of seasonality, if you will, relative to how, when the new plain year turns for both new and existing clients, you know how members utilize the benefit. But other than that, really, really nothing. I wouldn't call it holding back I would call it you know, this is the best visibility that we have and the best guidance we could put out there relative to that visibility.

And then, just on the pharmacy contracts, maybe just remind me how the economics flow on that RX benefit. Is it just the markup? Is there any pass through doesn't seem like, you know, there is or what is the pass through essentially to your customers versus what you keep? And then you also mentioned contract renewals with your providers. Is that just annual update? Was there sort of a greater portion approval, given everything that happened last year? And certainly does seem like this pressure is there, but maybe anything in your discussions on whether there is or could be more on rate that they're looking for? Thanks

Well, we don't quantify how much we do, we don't pass back to our clients. But we do adjust prices. When we have favorable economic arrangements. The majority of sort of what we get, if you will, economically, we share with our clients, and we've been doing that for years. And it's also what we're doing this year. And so you know, whenever we have an opportunity to do the right thing by our clients, we do that. But at the same time, we do have a focus on sort of growing the business and growing margin sort of overall, incrementally over time. What was -

Provider side just recurring provider negotiation.

The providers all have different. And that's why we sort of call that normal recurring negotiations. The providers all have different contractual start and end periods. They're generally two-year agreements. And so, you know, they all sort of, you know, every quarter cycle in and get renegotiated and set there in the network. The thing that changes and can impact any period is the volume of providers that may have a higher volume of our overall members going to them and therefore can have a bigger impact in any one period, et cetera, in terms of what gets negotiated within the quarter, but for the most part is normal recurring, you know, contract and rate discussions, you know, generally a data-driven discussion with our providers that we've been doing, you know, over the years.

Okay, got it. That's helpful. Thank you.

Thanks, Ralph. That concludes the Q&A portion for today's call. I'd now like to turn the floor back over to James Hart.

Thank you, Catherine. And thank you, everyone for joining us this afternoon. Please, if you have any follow-up questions following the call, don't hesitate to reach out to me. And we look forward to speaking to you again next quarter. Thanks again.

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.