Good day, and welcome to the Progyny Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, Paul, and good afternoon, everyone. Welcome to our Fourth Quarter Conference Call. With me today are Pete Anevski, CEO of Progyny 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 our comments and responses to your questions today reflect management's views as of today only and will include statements related to our financial outlook for both the first quarter and full year 2026 and the assumptions and drivers underlying such guidance, our anticipated number of clients in covered lives for 2026, the demand for our solutions, anticipated employment levels of our clients and the industries that we serve are expected utilization rates and mix, the potential benefits of our solution, our ability to acquire new clients and retain and upsell existing clients, our market opportunity and our business strategy, plans, goals and expectations concerning our market position, future operations and other financial and operating information, which are forward-looking statements under the Federal Securities Law. Actual results may differ materially from those contained in or implied by these forward-looking statements. Due to risks and uncertainties associated with our business as well as other important factors. For a discussion of the material risks, uncertainties, assumptions and other important factors that could impact our actual results please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin on incremental revenue. More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures are included 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 this afternoon. We're pleased to report that 2025 was an exceptionally strong year for Progyny where we achieved record highs in revenue and adjusted EBITDA, with both metrics increasing double digits over 2024. We also generated a record $210 million in operating cash flow, an increase of 17% over 2024. We're pleased that the strong finish to 2025, completing the fourth consecutive quarter where both revenue and adjusted EBITDA exceeded our expectations. . Our $1.29 billion in revenue and $222 million in adjusted EBITDA in 2025 was nearly $90 million and $28 million, respectively, above the midpoint of our original guidance range for the year. Additionally, the operational execution we achieved this past year sets us up for continued momentum in 2026. As always, this starts with our focus on member and client satisfaction. And this constant focus along with the value we deliver to our plan sponsors has once again yielded a near 100% retention of our clients, including all of our largest employers. Progyny's value proposition entails total program management in all the areas that are critical to the health of our members as well as to the employers that provide their benefits. This includes execution across member satisfaction, clinical quality and outcomes and overall cost management. We've been able to hold costs and trends far below what employers have experienced in health care over the last several years, even against the backdrop of record medical cost inflation in the U.S. over that same period. For quality and outcomes, we once again led the industry in clinical results translating into successful family building, healthier pregnancies and better support for menopause symptoms. Those outcomes also translate into the elimination of unnecessary treatments, reducing the rate of high-risk pregnancies, eliminating waste with…

Thank you, Pete, and good afternoon, everyone. Based on the positive feedback we received following the last quarter's call, we're continuing with the format we introduced in November. The 8-K we filed this evening includes a set of summary slides providing highlights on the quarter and illustrating some of the longer-term trends that we believe are important in understanding the health and direction of the business. So rather than repeating what's addressed in that material, I'll use my time today to focus on the key takeaways coming out of the quarter, particularly with respect to the lasting trends that are impacting how we think about 2026 and beyond. So first, we continue to see good revenue growth overall, 7% on an as-reported basis in the quarter or 21% when excluding the impact of a large former client in the fourth quarter of 2024. As a reminder, the transition of care agreement pertaining to this large client ended as of June 30, 2025. So our results for the fourth quarter and the second half of 2025 don't include any contribution from this client. For the full year, revenue grew 10% on an as-reported basis or 20% when excluding the impact of the former client in both periods. Second, member engagement, both in terms of utilization as well as consumption of ART cycles per unique utilizer remain healthy and overall member activity pace favorably versus what was assumed in our guidance. Accordingly, fourth quarter revenue exceeded the top end of our range by nearly $11 million. As Pete noted earlier, our results have exceeded our expectations throughout the past year, reflecting how members have continued to prioritize their pursuit of the care they need in order to realize their family building and overall health goals. Third, we continue to achieve healthy profitability…

[Operator Instructions] And the first question today is coming from Jailendra Singh from Truist Securities.

I just want to go back to your explanation on this change in membership outlook for 2026. Were those mismatches you called out just at new clients or at existing clients? The 400,000 delta seems like a pretty big number to be explained by just administrative issues. And does that mean that 2025 membership figure might have been overstated as well? Just help us clarify that.

Yes. So it does relate to the previously existing clients. It's not related to the new cohort. Again, as I said in the prepared comments, we do receive updates throughout the year. That's the basis upon which we provide numbers for lives throughout the year. At the end of the year, it tends to be more significant in changes. Given enrollment changes, et cetera. But this happened to be a bit more significant in terms of these administrative changes than we've seen in prior years. Although, again, as we get bigger proportionately, you'd expect those numbers to be out there. The truth and the reality is that we're reliant on clients and their processes to give us these numbers. And they're not perfect. And so again, I think what I tried to stress in the prepared comments, which is important is our models, our guidance and how we run the business isn't driven by those population counts. It's on the actual utilization that we're seeing from those clients.

Got it. And then a quick follow-up around Progyny Rx. There has been some confusion among the investor community about the Progyny Rx model and economics given all the developments around a Federal bill, which requires 100% rebate pass-through in 2028 and also some fertility medications at a much lower cash pay price on TrumpRx. Maybe talk about just the value of Progyny Rx. Have you seen any employers bringing this up in terms of what's happening in the marketplace? Do you see any pushback from employers? Do you see that model evolving in any way that economics don't change much for you, but you still kind of check the box on what your employees are looking for?

Sure. So we haven't seen any pushback as you're describing it or employers raising concerns about what's out there. Whether or not the -- our model, I'll remind everybody, includes rebates at point of sale. We've been doing that since we introduced our pharmacy product back in, I think, 2018, it was. And whether or not the model itself in terms of how we charge fees changes or not remains to be seen. But I think the net economics based on the value that we deliver, both on the medical side as well as the pharmacy side and the overall integrated program and how that's key to drive the member experience and the outcomes and that value is important. And so I don't expect the net economics to change, but the structure of it is certainly possible in the future.

The next question is coming from Brian Tanquilut from Jefferies. .

Maybe I'll hit on Progyny Select first. How do we think about the strategy on pricing Progyny Select and how you're thinking through the risk or whether or not there is risk associated with that strategy in terms of undertaking a [ PEPM ] model? And any other KPIs that you can share with us in terms of how you're thinking about like utilization per member base or anything along those lines?

Sure, sure. So I'll start with the fact that although in our client counts and when we talk about them, we talk about employers 1,000 lives or more, we have a number of clients -- and the overall lives are included the smaller clients. We have many, many smaller clients that we use to underwrite the product. And that experience is what we use as a starting point relative to pricing the product. As you might imagine, we manage our book of business on behalf of our clients that are ASO clients and self-insured clients, and we could do the same thing for ourselves, and that's how we priced it. We put in guardrails around some of that risk to ensure that there isn't significant variability in terms of utilization versus our current book of business, and that's part of the structure of the product. Some of those guardrails include the offering and not being able to be selected at the individual level, and so no opt-outs being allowed, but that when even the smaller employer clients take the benefit, they take it for all of their lives. And then overall, there are other types of caps and guardrails, including [ caps ] for high-cost claimants, et cetera, that are within the product. But overall, the way we see it is as the pool grows, right, it's going to perform no different than what we see with the long tail of smaller clients that we have today that are not inconsistent with our overall utilization. Once the pool is big enough, our expectation is that there shouldn't be a lot of variability, and therefore, we priced it that way. We did obviously put in a risk premium, but we priced that way off of that experience.

Okay. That makes sense. And then my follow-up, just as I think about the guidance and the commentary you made in Q1, just to clarify, I mean, first, should we think of this as there's ample conservatism just because we're early in the year? Or would you pointing to kind of like the low end to midpoint of historical ranges, is that just basically factoring in what you're seeing quarter-to-date? And then maybe last part here in this question is, when I think of the margin compression that's implied in the guide, I mean, what are the factors there other than kind of the revenue outlook being what it is?

Yes. So our guide is always based on the activity that we're seeing in any period. So -- and for the benefit of the first quarter because our call is a little bit later, we do get the benefit of being able to see a little bit more data as we set our guidance, although I'll also add to that, that new clients who are just coming on board, they are ramping up. And so there's good news there and maybe a little bit less data as you're looking at the newer clients. But it is all based on what we're seeing. So I'll start with that. And then as far as margin compression goes, we typically see in the first quarter as we've ramped up the entire business. There is a step-up typically. Again, our revenue for this quarter is only just a little bit north of 23% for the full year. So we are prepared to handle the business throughout the year. So there's a little bit of compression there. And I think there's also some timing around the platform investments and the product expansions that we talked about, that ramped up through the course of the first part of last year. And so it wasn't as much a contributor to expense in Q1 of '25.

And the next question will be from Michael Cherny from Leerink.

Maybe to build on Brian's a little bit. If my math is correct versus the starting point of the midpoint for your initial '25 guidance, you ended up coming in a little over 7% better than the initial midpoint on revenue, a little more than 14% on the initial midpoint on EBITDA. I fully respect the formulation you have on guidance and what you're seeing now. But as you think through what's embedded in the guidance, in the view, how do you think about the swing factors that get you to the bottom end of the range versus the top end of the range? And then has anything changed relative to the visibility that you think you have into those different metrics?

So when you think about -- and again, this has been the similar philosophy we've been using now for a good several quarters. So what we're seeing and the data that we have to make our predictions for the quarter and the year. I would say our -- and have you seen, are closer to the higher end of the range than the lower, the low factors in incremental variability of various sorts, whether it's lower number of cycles per utilizer, lowered utilization rate, et cetera. Although at this stage, that's not what we're seeing. And I think as far as factors and drivers that can influence the year as we go forward. So faster pace of treatments, improved mix of treatments in terms of revenue per overall cycle, improved utilization as we go through the year, like those are all many of the key factors. We don't include revenue from any sales that we make that we have not already had full commitments to and largely all of the clients that we've sold have already launched. So -- and so to the extent that we have midyear starts or third quarter starts or fourth quarter starts, like those are all potential contributors as they have been in any year.

Helpful, Mark. If I could just touch on one other. How should we think about the contribution in the year from some of the other maternal health services that menopause, et cetera. Is it material at this point in time? Or is this still something that's more a value-add relationship builder, just curious on the financial impact.

Yes, it's growing, but it's not yet material. And it's definitely a value add, as you described it relative to the overall services that we performed with our clients. When it becomes material enough to break it out, we will, but it's growing.

The next question will be from Scott Schoenhaus from KeyBanc. .

My counterparts here. So we know that you've reduced your expectations or your clients have reduced your expectations on lives, but you said that those were all from lower-yielding lives. So the implied utilization is actually better for this year based on the revenue ranges. I guess the utilization -- sorry, the revenue ranges in first quarter and the implied utilization there would suggest to me that from this new cohort, which we backed into is high utilizing cohort so far, maybe as you do IVF, you have your initial consult, the earliest you could ever do that would be January. We take a month to do -- to get on your -- depending on your cycle to get on these fertility medications and then another month earliest to do the retrieval. So my question here is that we've obviously seen this new home cohort do the initial consults pretty nicely here. Should we assume that there's a nice tailwind here coming through the next several months of potential retrievals based on what you're seeing today in this new cohort of high utilizing clients?

Yes. I think look, the way that our guidance is laid out, especially, again, you can just see it in the revenue mix, Q1 being less than 1/4 of the year. So implied there is a step-up as we go through the year. We gave you a range around ART cycles per female utilizer. And if you sort of try to do the math of what's the balance of the year to get to the annual numbers that we've also provided, it does imply that there's step-up that we would normally see throughout the year. So again, it's been a good start to the year, and it would seem that the phasing and profiling of it is as we would normally expect.

Great. And then, Pete, this is a follow-up for you. You had some nice -- I don't think you've ever given us early selling season commentary this early. But could we contemplate some of these wins coming in throughout the end of this year like we experienced, I don't know, was it two or three years ago? And are these large employers. Can you give us more color on that commentary? I thought it was interesting.

Sure. So they're not large employers in terms of an individual employer, but we've had a good number of wins that we're pleased about, especially this early in the selling season. A lot of times throughout the year, there are clients that we sell and then go live during the year. That's normal every year. As you recall, a couple of years back, I forgot if it was '23 or '24, I think it was '23, there were really large clients that we sold and went live during the year. This isn't the case yet. Who knows what we'll see. We don't ever plan for that. But nonetheless, a small amount of activity does happen where we sell and they go live during the year. Last year, that was the case. And every year, that's the case. But it's usually a longer tail of smaller clients that do that.

Next question will be from Peter Warendorf from Barclays. .

If I'm doing my math right, it sounds like membership is probably up kind of in the mid- to high single digits range this year, and revenue growth is maybe closer to low double digits, low teens. Can you just help us think about how to bridge that gap? And maybe what's coming from utilization versus upsell versus any kind of contribution from the new products?

Yes. Look, I think when you look at the midpoint for the year, again, excluding the impact of that other client, we're projecting like 11% growth at the midpoint. And so with your lives growth, which is -- and ultimately, the utilizers, if you do the math and even ART cycles, all of those are contributing a significant part to that 11%, but we also do -- again, we're proud of the cost control, our level of cost control on behalf of our clients. But we do have an element of rate that's also included, which helps bridge that gap. So those are kind of the key pieces.

If you think about Mark's comments before, think about it as lower utilizing lives being replaced by higher utilizing lives, which are part of that. So the straight math of just the increase in lives misses that little piece.

Yes, good point. .

Great. That's helpful. And then maybe with a little bit of macro uncertainty out there, is there anything on the treatment mix side that you might think is worth calling out here? .

No, nothing unusual.

The next question will be from Sarah James from Cantor Fitzgerald.

You talked about Select Group becoming more predictable as it scales -- how do you think about what a critical mass is for predictability. Are you already there now given your exposure to small group on the ASO product? Or how long could it take to hit that critical mass level?

Yes. Well, we're not there now, as I mentioned in my comments, right now, what we're doing is going to market with the distributors and broker partners, et cetera, that we'll through there sales force be selling Select, right? For those, they won't go live until 2027. So there is no -- there's nothing to refer to now in terms of what we're seeing today for that pool. The pool doesn't have to get that big to start to become predictable. You're talking in a couple of hundred thousand lives range or thereabout is by prediction based on the data that we have until it starts to become predictable and act more closer to the the book of the business assuming no weird anomaly in terms of sort of one industry versus another being heavily weighted in that population, which we don't expect. And so that sort of -- and until that happens, there may be a little bit of variability, but relative to the overall number of lives that we have, it won't actually have any noticeable impact, if you will, on margins overall or our EBITDA margin and/or our gross margins to speak of. But once it gets to enough of a pool across a long tail of smaller clients, it should become predictable not unlike the book of business.

And just to put a fine point on it, so Pete mentioned a couple of minutes ago, how we do have clients that are of that size now. So we obviously have that data. But we also looked at our smaller-sized clients with a similar structure of benefit and whatnot. So we do have a tremendous amount, 10 years plus of data that we can use to help refine what we expect those pools to deliver when they get to some level of scale .

And we do have actuaries just to be clear, we did -- and all this was underwritten with those experts.

That makes sense. And just one follow-up, if I can. When you talked about the high-cost guardrails, how are they structured? Are you talking about reinsurance? Or are you talking about claims reverting to the employer at a certain attachment point? And what is the average attachment point.

Well, the simplest -- there's a couple of guardrails again, without getting into all the details of the product, but the simplest guardrail is a maximum dollar amount for high-cost claimants, right, a lifetime maximum, right? And then at that point, it's not going to revert back to the employer. It's just the employee then becomes effectively self-insured again or cash pay is the simplest example of one of the guardrails that are out there.

The next question will be from Constantine Davides from Citizens.

Maybe first question for Mark. You obviously had a big step up in CapEx in '25. And just wondering if you can give us a little flavor for your expectations for 2026, if we see another step up or maybe a drop-off and then I guess, whatever color you can provide around operating cash flow conversion for '26 as well.

Yes, sure. So as I said a couple of minutes ago, so a lot of the effort that we've put into improving and expanding our platform as well as investments as we've been expanding the number of products and really getting them launched. That really ramped up, let's call it, over the first half of 2025. And so as we come into 2026 and sort of lap that, we do anticipate for the full year that there'll be a step up, but not a doubling. I think if you think about it in terms of a full year impact of those levels of increase is probably the right way to think about it. And then from a cash flow conversion standpoint, and it's in our materials, you'll note that we've made a significant reduction in our outstanding DSOs credit to our teams and the work that they've done to make that happen. But there is a limit on how much we can continue to sort of reduce that. There is a structure of how the cash will work. So I think going forward, although we've been beating it for a couple of years now, the 75% conversion rate from adjusted EBITDA to cash flow is probably a better metric than what we've been able to achieve and beat that metric over the last couple of years.

Got it. And I guess just one follow-up on the newer solutions. I know you said those won't really impact '26. But I guess you talked about having 2.7 million eligible members now with access to those programs. What are you kind of learning about targeting and marketing those programs to the members. And I guess, again, I know it's early, but where are you seeing the most success in terms of those newer solutions to date?

Yes. It's not the traditional way we do it today where we're doing the individual marketing to the end clients. It's leveraging distribution partners and their sales force, i.e., brokers that generally today, sell overall .

He is asking about menopause and...

I'm sorry. I apologize. .

The differences in the selling motion.

The when we sell the expanded products with the fertility benefit, the sales force is generally trained to sell those products we market to our clients relative to those overall solutions. And then we have subject matter experts, as you might imagine, that are broaden in some of those areas. And we also, on top of it, then once they're live market to the individual members in conjunction with our client partners.

And the next question will be from Allen Lutz from Bank of America.

This is Deb on for Allen. I appreciate the color on the member base and some of the drivers there. Just curious if there's any particular industries where you saw the elevated administrative changes -- and then it sounds like you're pretty constructive on the pipeline despite some of these higher administrative churn. How are -- how have your conversations with clients over the last month or 2 change, if at all, around the labor market -- just any color there, additional color would be helpful.

To the second part of your question, conversations have not really changed. The current pipeline and the early season wins that I referred to are generally coming from the carryover pipeline from 2025 and the selling season for 2026 and continuing to add to that pipeline is very underway. But I would say, generally, no different conversations relative to the labor force and what we've been having.

Got it. And then any particular industries that you saw the elevated administrative changes?

No. It's across a bunch of industries. I think the only common theme in it is, again, the apparent utilization rate that we're seeing from them were lower than the book.

There were no other questions from the lines at this time.

Well, thank you, Paul. Thank you, everyone, for joining us this afternoon. Please, of course, as always, feel free to reach out to me on a follow-up with any additional questions. Otherwise, we look forward to seeing you at some of the upcoming conferences or in the first quarter with our call in -- I guess that would be May. Thank you all again.

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