Good afternoon, ladies and gentlemen, and welcome to the Progyny Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants have been on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, John and good afternoon everyone. Welcome to our fourth quarter conference call. With me today are Pete Anevski, CEO of Progyny; Michael Sturmer, President; 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 first quarter and full year of 2022 including our expected utilization rates and mix, the impact of COVID-19 including variants on our business, clients, member activity and industry operations, our ability to acquire new clients and retain upsell existing clients, our market opportunity, size and expectation of long-term growth, our plan for the extension of our business including expansion to other market and of other services offered, our business performance, industry outlook, strategy, future investments, 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-Q. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, gross margin, excluding stock-based compensation and operating expenses excluding stock-based compensation. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progyny.com. I would now like to turn the call over to Pete.

Thank you, Jamie. Thanks everyone for joining us today. Mark will walk you through the details of Q4 and full year shortly, but before he does, I'll give you some high level thoughts. In 2021, the Company grew direct levels both revenue which grew 45% over 2020 and it seems its higher levels of profitability with 13.5% adjusted EBITDA margins. We also maintained our nearly 100% retention rate among our existing clients, driven by our industry leading clinical outcomes, which we achieved for the sixth year in a row as well as our exceptionable member and client satisfaction, which is evident in our best ever NPS score of plus 81. On top of this, we had our most successful selling season ever which is the most important drivers to our long-term growth by adding a record 85 new clients and 1.2 million new covered lives. We accomplish all this despite the unexpected COVID-related waves that marginally disrupted member activity from time-to-time including the most recent disruption due to Omicron at the end of the fourth quarter. When we issued our guidance here in early November, we've been experiencing increased utilization as September, October and November, all had strong sequential growth month over month. When the Omicron variant COVID-19 emerged in early December and spread across the country faster than any other variant, overall member activities slowed sharply enough that it had an impact on our results in the quarter that was beyond our ability to predict. To put that into perspective, we typically see in our guidance for Q4 contemplate a decrease in memory utilization from November to December due the holidays and routine clinic closures. However, declined we actually experienced in December due to Omicron was nearly twice what we were anticipating, resulting in a negative impact of revenue…

Thank you, Pete, and good afternoon, everyone. I'll begin by taking you through our fourth quarter and full year 2021 results and then provide our expectations for 2022. In the fourth quarter, revenue grew 27% to $127.6 million while revenue increased meaningfully on a sequential basis from the third quarter driven by strong utilization in October and November, the onset of the Omicron variant impacted member activity in December. As Pete mentioned a moment ago, the sequential monthly decline we actually experienced in December due to Omicron was nearly twice what we were anticipating, resulting in a negative impact to revenue of approximately $9 million in the quarter. And while Omicron continued to have an effect on activity in January, we have seen member utilization return to more typical levels in February and based on the visibility we have also in March. For the full year revenue grew 45% to $500.6 million. We are pleased to have reached the milestone of a $0.5 billion in annual revenue in what was just our sixth year of offering the benefits. It was only three years ago in 2018 that we crossed a $100 million in annual revenue, which puts the rapid growth we've achieved into perspective. Turning to the components of the top line, medical revenue increased 19% in the fourth quarter to 89.2 million, while growing 40% over the full year to 355.6 million. The growth in medical revenue both in the quarter and the year was driven by our higher number of clients and covered lives though our growth in the fourth quarter was impacted by the Omicron variant. Pharmacy revenue increased 50% in the fourth quarter to 38.4 million. Over the full-year Pharmacy revenue grew 59% to 145 million. Our growth in pharmacy was primarily driven by the increased…

Thanks Mark. We believe the increase in focus on ESG among leading companies is providing us with additional momentum in our new sales efforts. We begin 2022 as I mentioned before in our strongest ever competitive position has granted choice and facility and family building benefits. And with the macro trends that have been fueling our rapid growth in tax and a business that's been built to achieve sustained long-term success, we look forward to providing you with further updates on our progress throughout the year. With that, operator, I'd like to open up for questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And the first question is coming from Anne Samuel from JPMorgan. Your line is live.

I was wondering, if maybe you could provide a little bit of color on what kind of utilization recovery is embedded within the full year guide? It seems like the first quarter is only about 70% of where you were expecting shake out, but you said the February has recovered back to normal levels. So, that feels a little low, just helping you provide a little more color there.

So, as far as the recovery goes, January really reflected what was happening with caseload and how people were generally seeing the impact of Omicron and its being relatively mild. So, we've seen the activity really come back pretty quickly in February and March. So, our guide for Q1 and for the full year sort of factors in everything that we're seeing, as we sit here now. As far as and I didn't quite catch your 70%, but I think it's you're asking sort of Q1 and how it relates to the full year. Just want to remind, generally the first quarter and the first half of the year tend to be a little bit less than the full year overall in terms of the percentage of revenue some sort of evenly spread. Just as a reminder, the new clients as they get up to speed typically have a higher proportion of initial consults in the earlier months as they were progressing along their member journey. So if you look so for example, the way that we modeled this all out in detail by client, as we do all of our expectations and projections, but we also do sanity checks and on what we are seeing. And so if you, for example, if you take 2021 and you look at the first quarter and you look at its relationship to the full year, now, if you add the $9 million that we've mentioned, that dropped off here in December, you're looking at a, you have to, it's a ratio of about 4.2:1. So, if you take our guidance for Q1 and you extend that out by that same ratio and then add the revenue for clients that have not yet launched here, that will be launching here in Q2 and a small number in early in Q3 of about $40 million to $45 million, that gets you pretty close to what our full year guidance.

That's really helpful color. Thank you. And then, you noted in your remarks that there is some time sensitivity to futility. So, how should we be thinking about where these loss cycles are going? Do you expect to see some kind of catch up at any point?

Yes. Here's how I think about it, right? To the extent that anyone is deferring treatment, whether it's hesitation relative to the backdrop of the pandemic, whether it's the hesitation that we saw over the summer relative to what we believe, which was faster reopening, I think, and the impact of folks just deferring to sort of take advantage of getting out the house again. If you will go on vacation, et cetera. ART cycles, right. And so, to the extent that those are deferring and they do effectively come back on board, those that learn that they have a challenge with having a baby naturally and need fertility, but then have trepidations and a new cohort sort of ART cycles. And so, it catches up in the short-term relative to those that deferred at some level, and we never know exactly how many deferred and deferred definitely. But those that become aware of a challenge that they have that are newly aware, but then also have any trepidations are going to sort of defer. So, it sort of cycles overtime. So, it doesn't all come back all at once because everybody doesn't understand all at once that they even have a challenge. It's something that you learn. It's the reason why utilization happens all year long at different people at different points in time make a decision to have a baby, and then may learn, they had a challenge throughout the year.

That makes sense. And if I could, just squeeze in one more, you've been seeing some really nice margin expansion on the gross margins recently. And I was just wondering how much more room is there for expansion and what might some of those drivers be there?

The expansion that will always be inherent in our business is primarily around the care management services, right? So, to the extent that they are embedded in cost of operations and to the extent that we continue to grow the business at the rate that we are growing it, you're going to see continued expansion and leverage off of those services. And then to the extent that there are opportunities in the future around the entire supply chain, if you will, what we deliver, whether it's on the medical or pharmacy side, as we continue to grow and scale, we are going to hopefully be able to continue advantage of that purchasing power that we have. And as we always do, we share a little bit with our clients and we keep a little bit, so I can't tell you how good that's going to be or sort of how much it's going to be. I can just tell you that based on where we're at in our growth cycle we believe that we'll be able to continue to expand those margins.

Okay. The next question is coming from Michael Cherny from Bank of America. Michael. Your line is live.

Pete, Mark, if I can dive a little bit more into the revenue growth guidance. Clearly, there is a lot of moving pieces you alluded to over the course of 2021. You also noted some good hindsight of visibility even into April. That being said, as you think about the guidance and especially the range of the guidance being very wide on the revenue side, what are some of the moving pieces you're looking for to get yourself comfortable with different areas low and mid-point, high-end guidance? And as you think through what you learned during COVID, is there another potential set of leading indicators that you think could be more important to understanding upside downside to guidance over time?

So look, right now, we have really good visibility, obviously into what's happened already, so January in February and a pretty good view on March. We do have an early peek at say, at April but again, you have to be a little bit careful on extrapolating really big numbers. But again, we take all of that, into consideration is what drives our models. I think maybe giving you some color around how we view the guidance itself and the range that we put out there. So, on the high-end, that reflects what we're seeing now, and it reflects a normal level of utilization and mix, et cetera. And we, we obviously have a more sizeable guide, because the numbers overall are that much bigger. So that's obviously driving a big part of that when you look at the full year. So, when you look at the overall range though, it does factor in some level of perhaps less favorable mix, some slight changes in utilization, because it does vary from time to time, quarter to quarter. So maybe some slight unfavorable changes in those patterns. Possibly the impact of a variant that we don't know about right now, but it also factors in and I've already mentioned it that we have a little bit higher number of clients that are launching in Q2 and Q3 than we normally do. And it's just a factor of contracting in there, everybody's committed, it's just a factor of when they are choosing to launch and that represents about $40 million to $45 million. To the extent that they decide to delay that at some point any further, that's a risk that would effectively, hopefully be caught up within the range that we've put out there. So, those are some of the big pieces that that we're looking at as we considered that with.

Along those lines, you mentioned, understandably, the starting point or starting the year of more initial consults and visits. And I think you've said over the course of 2021, I think, revenue for ART cycle dropped fairy new to over the course of a year. Where are we looking for the turn? And what do you think are the most important parts of attract determine that number?

Yes, so I think you're looking at -- you're looking at mix that that impacted us in ways that was really abnormal for us. I know we talked about that certainly in the middle of the summer, as we saw sort of a pause in treatment progress, so when you have those initial -- and we only start with the initial console, which is comparatively lower revenue. If you pause your treatment at that point, the impact of that is overall revenue dropping or if you're in the midst of your treatment, it really that's it's similar pattern that we saw, there's a number of things that obviously affected December, but that was also something that we saw in December whether mix of revenue was a little bit slowed.

I think the other think to think of that is that as we continue to grow across the country, right, rates from earlier years sort of pre-COVID, right, where were the concentration of our members and our member experience, a utilization was on the East and West Coast, where he's you had the highest prices, as you continue to grow and dispersion of members engaged across the country grow, rates do vary. So, it's not necessarily that it's going to, as you describe it, turn and sort of get back to those low levels because it's all about mixed and averages and prices across the country. And so, it's not as simple as sort of only impacted by mix of utilization during COVID. But it's also the reality of a growing client base, a growing member base across the country, and down in places across the country that aren't primarily concentrated as they were in the early years, much more so on the East and West Coast, disproportionately, versus where we're at today.

Next we have Glen Santangelo from Jefferies. Glen, your line is live.

I just want to follow up on the previous questions around the revenue guide, maybe in a couple different ways. And I apologize if I missed this, but I know you're expected to be at 4 million members. Do we know exactly when you'll be at that 4 million member, Mark? I seem to remember, I thought it was second quarter or middle of the year?

Yes. Second quarter, the majority of those that have not yet launched, will be launching in the second quarter. There's a few in Q3, but it's comparatively smaller.

So I guess my question is, if you look at the membership growth sort of year-over-year, even if you use the 4 million members that mean your membership growth is a good chunk below where your revenue growth is kind of implying some uptick in utilization, and now where we're sitting in January maybe being a little bit behind in April, as we look to the midpoint of your '22 revenue guide. I think we're all trying to understand is, you said it sort of incorporates what you're seeing today. But are we -- do we need improvement from where utilization currently sits to ultimately get to the midpoint of that guidance? I think that's what we're all trying to understand.

The biggest driver of why your revenue growth is outpacing your member growth is your adoption of Rx. So Progyny Rx is a much bigger part of your existing client base that's live. And they're also part of the new client starts, if you will, from an upsell perspective in there as well, that's going to help drive the overall revenue number, these would be your remember growth. And you also got a look at number, your membership growth on average for the year, not just where we're exiting the year. But on average for the year versus where we started the year, we were at roughly 2.3 million and went up to 2.9 million. So it's really on average, and how much you're growing and how much you'll continue to grow. And remember, the last piece is that the existing client base just like it grew this year, whether it's going to grow at the same rate or not, we'll never know. But the existing client base is going to start the year with a number of members and eligible allies. And as they grow as companies, more and more members will be eligible for the benefits throughout the year. So you got to factor all those things in, which is what we do in our detailed models, when we put out the overall guidance.

But again, even at the high that basically assumes a normal level of utilization. So although January was somewhat affected by Omicron and February and March, we think really good activity there. We're not necessarily riding an extra, a little bit of extra goodness in February and March, through the balance of the year. It is based on what would be a normal level.

And then maybe just a quick follow up on the expense side. I mean, look at the EBITDA guide, the adjusted EBITDA guide seems pretty decent. I was kind of curious. I wanted to ask about the stock-based comp. You talked about a fair amount in your prepared remarks. If I look at that '22 stock-based comp level of $110 million, I mean, if I'm comparing that correctly to 2021, that number's up almost 4x. And so, you mentioned that that stock award that you gave to everyone in the Company, I'm kind of curious, could you give us more color around that award? Did anything else changed in your comp plans and are you replacing any type of cash compensation with equity compensation? Any more details around that would be helpful. Thanks.

Yes. I'll answer the last part of your first. We're not replacing any level of cash comp with stock comp. You have to remember that, we're recently public as a result of being recently public, the significant amount of grants that were out there already were pre-IPO at a much lower level, when you do a broad-based grant, even though this shares relatives to shares outstanding, in our existing comp plan were small. When you grant them at a much higher stock price, and you do a black shield value. It's going to have a much bigger impact from a stock compensation perspective, which is why, we break that number out. And we give you the color around our results with and without stock compensation. So, we are not doing anything different. In fact, there is still a significant amount of remaining shares that we have available to grant that we didn't grant. And so we just did, what we felt were we are very judicious in how we do those grants. We did a level that we felt was important relative to the existing client base, shares they had remaining and shares that we put in place as sort of continue our retention. But, the jump-up is really a function of just the strike price at the time of grant, which was way higher than what we had prior to that in 2021 or any year, you look at where the majority of shares were issued, pre-IPO.

Yes. And we'll be filing our 10-K tomorrow. And obviously, the usual disclosures in and around this will be in there. So you will be able to very clearly see that step-up in black shield valuation that Pete talking about between what had been previously granted and outstanding versus this grant that we did. Well, it'll be for the year, but substantially in November.

Up next we have Sarah James from Barclays. Sarah, your lines is live.

So you guys talked about '22 margins on incremental business being over 19%, which is a step down from the 22.4% in '21. Is that just conservatism or is there a different mix going on or like a capacity type of investment going on that would drive this step down?

No. Actually, I think the answer is actually fairly straightforward here. So in 2021, we do have a bit of a favorable comparison versus 2020. Remember, we had that deep drop in revenue in Q2 of '20 as the clinics were being close in the early days of the pandemic. And we've retained all of our staff during that period in order to one service to the members because they were still going through transition at that point. But also we hoped and it obviously came to pass that, activity would ramp back up really quickly. But that period alone, it was sort of enough to drive the few points that you are seeing between the favorable results here in '21 compared to 20 versus what we are now guiding to for 2022.

And then how do you think about client size trending for the next few years, as you look at the companies in your pipeline and who you're talking to? You had a little bit of a step down in client size this year. Is that the way your pipe is going to work as the market matures or with this kind of like one-off?

I'm not sure that the step down that you're referring to. From a new client sales perspective, in '21 for 2022 launches, we've returned back to normal levels in terms of average client size in the lives that they represent versus the 2020 selling season, that launched in 2021, they were a lot smaller, because a lot of the larger companies poured their benefits that they were managing through the, their workforce, being remote workforce dramatically and so. So, we're choosing not to make many benefit decision changes. Based on what we can see right now in our pipeline, it looks more like it did for '21 selling season than it did in sort of the dip that we experienced in 2020.

The next question is coming from Stephanie Davis from SVB Leerink. Your line is live.

You've kind of answered this prior in a prior answer, but I was hoping [indiscernible] more. What gave you the confidence to create your '22 guidance? Was that reflective of some cushion baked in? Or did you just find out about the RX attach rates more recently, so that was most of the driver of the upside?

I think Mark went through sort of all the different factors that went into our guidance that we put out there, both high and low end of the range and all the components, including the timing of new clients starts, beginning of the year versus the portion of those that are starting in Q2 and a little bit in Q3. It's really all of those things rolled up that give us plus obviously the current activity relative to member engagement that we're seeing already for, February and March, a little bit of visibility into April, et cetera that we're seeing that we use is predictive for what we should expect during the year. So really, those are all the factors, I'm not sure there's any other color we give you relative to our expectations, but just to tell you that it's based on sort of all those factors are all rolled up into what ends up being the guidance that we're comfortable putting out there.

And just based on the attach rate, when we get commitments from clients, we are getting it. We have, again, preliminary information about the size of the client, the number of ART cycles they want, but also whether or not they're going to they anticipate launching with the Progyny benefit. And so, we obviously want to get that under contract get the clients launched and to really see the activity around it. But that's not sort of to us anyway, that's sort of the attached rate isn't really very new information, I think we even commented at JPMorgan that we had an uptick in the take rate for this new cohort of clients that are going live.

Yes, understood. I declined you to ask the kind of the guiding question like besides the legalization. How do I utilization and otherwise, missing a bit then just to the big uptick in Progyny Rx. Could you maybe walk us through what pushed so many folks through the finish line and kind of economics of bundling versus what we've seen historically?

Yes. I think we've talked about sort of in the past when people ask the question, how come everybody's in sign up for Rx right away? And the answer in the past was drive sort of why the adoption, both for new clients, but also for upsells is, now the other constituents within a company that make the decision to sign up with Progyny Rx versus their existing prescription benefits are sort of those folks, right. And so to the extent that more and more people both saw with sort of new sales, understand the better member experience and also the financial benefits of Progyny Rx, that's resonated and as resonated as we continue to have a larger portion of sales that are not now. So they've been introduced to these ideas in prior periods. And so when they buy and that contribution of new sales in the past sales year was bigger than it was the year before, which is usually bigger than it was a year before that et cetera. So that's a contributor. But overall, it's just more awareness and less friction in the sales process. The other thing I will tell you is that our CVS relationship, as a channel partner, we announced in the beginning of last year also helped with that relative to new sales adoption relative to Progyny Rx, but overall, it's understanding of a way better members feelings when you're managing the benefit on the medical and Rx side, under one umbrella because they are pretty integrated in terms of the solution.

Next question is coming from Dev Weerasuriya from Berenberg. Your line is live.

I think we got some good color on utilization. I just want to circle around kind of the sales side of things. I think in the Q3 call that was mentioned that maybe portion of the 85 client adds, a portion of that could have been kind of delayed from 2020 into 2021. I know you mentioned it comes momentum [indiscernible], which is step up and cause a number of clients from the client as from 2020 to 2021. Do you expect kind of a similar step up in 2020? Any color around that will be helpful and I have a couple of follow-ups.

So no, I wouldn't -- certainly it's early in the sales year, so we don't know where we're going to end up. But all indicators are that the sales momentum that we experienced in '21 to continue to '22. When I say that, I mean, our goal was always been bad, more lives and logos than we added in the prior year, right. The increase in new sales one both in lives and logos in '21 versus '20 sales year was pretty pronounced and impacted by the fact that in 2020, as I mentioned before. Mostly large clients chose not to make any benefit changes, not just in facility, but in general, any benefit changes. And we want a lot of smaller clients and even the volume was less, because people were managing through and companies were managing through a remote workforce that they weren't at that time used to 2021 return to more normal levels. And so, our comments around sales momentum and what we're seeing so far is really around the goal that we've always stated, which is to sell more logos and lives than we had in the prior year and so I'd point to those comments.

Okay. That concludes today's Q&A of the conference call. Now, I'd like to turn the floor back to James Hart for closing remarks.

Thank you, John, and thank you everybody for joining us this afternoon. Please be sure to reach out to me, if you have any follow-up questions. Otherwise, we look seeing you at a couple of the upcoming conferences and then our first quarter earnings call in spring.

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