Progyny Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A. of this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A. in this Quarterly Report on Form 10-Q.

Previous wording

Progyny is a leading benefits management company specializing in fertility and family building benefits solutions in the United States. Our clients include many of the nation’s most prominent employers across a broad array of industries. We launched our fertility benefits solution in 2016 with our first five employer clients, and we have grown our current base of clients to over 450 with at least 1,000 covered lives. We currently provide coverage to approximately 6.4 million employees and their partners (known in our industry as covered lives), whom we refer to as our members. We have achieved this growth by demonstrating that our purpose-built, data-driven and disruptive platform consistently delivers superior clinical outcomes in a cost-efficient manner while driving exceptional client and member satisfaction. We have retained substantially all of our clients since inception, and our member satisfaction over that same time period is evidenced by our industry-leading Net Promoter Score, or NPS, of +80 for our fertility benefits solution and +80 for our integrated pharmacy benefits solution, Progyny Rx as of December 31, 2023. Our members experience healthier pregnancies and superior rates of pregnancy and live births, as well as reduced rates of miscarriages and multiple births, saving valuable time and money and limiting personal and professional disruption.

Current wording

Progyny is a leading benefits management company specializing in fertility and family building benefits solutions in the United States. Our clients include many of the nation’s most prominent employers across a broad array of industries. We launched our fertility benefits solution in 2016 with our first five employer clients, and we have grown our current base of clients to over 460 with at least 1,000 covered lives. We currently provide coverage to approximately 6.4 million employees and their partners (known in our industry as covered lives), whom we refer to as our members. We have achieved this growth by demonstrating that our purpose-built, data-driven and disruptive platform consistently delivers superior clinical outcomes in a cost-efficient manner while driving exceptional client and member satisfaction. We have retained substantially all of our clients since inception, and our member satisfaction over that same time period is evidenced by our industry-leading Net Promoter Score, or NPS, of +80 for our fertility benefits solution and +80 for our integrated pharmacy benefits solution, Progyny Rx as of December 31, 2023. Our members experience healthier pregnancies and superior rates of pregnancy and live births, as well as reduced rates of miscarriages and multiple births, saving valuable time and money and limiting personal and professional disruption.

Previous wording

Our Clients. We currently serve over 450 employers with at least 1,000 covered lives in the United States across more than 40 industries. Our current clients, who are industry leaders across both high-growth and mature industries and who range in size from approximately 1,000 to 600,000 employees, represent approximately 6.4 million covered lives.

Current wording

Our Clients. We currently serve over 460 employers with at least 1,000 covered lives in the United States across more than 40 industries. Our current clients, who are industry leaders across both high-growth and mature industries and who range in size from approximately 1,000 to 600,000 employees, represent approximately 6.4 million covered lives.

Previous wording

•Population-Based Component. Clients who purchase our fertility benefits solution also typically pay us a per employee per month fee, or PEPM fee, which is population-based. This allows us to provide access to our PCAs for fertility and family building education and guidance and other digital tools to all of our members, regardless of whether they ultimately pursue fertility treatment. PEPM fees represented 2% and 1% of our total revenue for the three months ended March 31, 2024 and 2023, respectively.

Current wording

•Population-Based Component. Clients who purchase our fertility benefits solution also typically pay us a per employee per month fee, or PEPM fee, which is population-based. This allows us to provide access to our PCAs for fertility and family building education and guidance and other digital tools to all of our members, regardless of whether they ultimately pursue fertility treatment. PEPM fees represented 1% of our total revenue for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Member and Client Base. Our addressable market is primarily large self-insured employers as well as labor populations under the Labor Management Relations Act of 1947 (also known as the Taft-Hartley Act) and federal government populations. There are approximately 8,000 employers in the United States who have a minimum of 1,000 employees, who together with Taft-Hartley labor populations and federal government populations, represent approximately 106 million potential covered lives in total. Our current member base of approximately 6.4 million covered lives represents a mid-single digit percent of our total market opportunity. We intend to continue to drive new client acquisition by investing significantly in sales and marketing to engage, educate and drive awareness of the unmet need around fertility solutions among benefits executives. We also increase brand awareness and adoption with employers by leveraging our strong relationships with benefits consultants. In particular, we are focused on expanding the number of clients with more than 2,500 covered lives. As of March 31, 2024 and December 31, 2023, we served 451 and 392 clients, respectively, representing 6,381,000 and 5,418,000 members, respectively.

Current wording

Member and Client Base. Our addressable market is primarily large self-insured employers as well as labor populations under the Labor Management Relations Act of 1947 (also known as the Taft-Hartley Act) and federal government populations. There are approximately 8,000 employers in the United States who have a minimum of 1,000 employees, who together with Taft-Hartley labor populations and federal government populations, represent approximately 106 million potential covered lives in total. Our current member base of approximately 6.4 million covered lives represents a mid-single digit percent of our total market opportunity. We intend to continue to drive new client acquisition by investing significantly in sales and marketing to engage, educate and drive awareness of the unmet need around fertility solutions among benefits executives. We also increase brand awareness and adoption with employers by leveraging our strong relationships with benefits consultants. In particular, we are focused on expanding the number of clients with more than 2,500 covered lives. As of June 30, 2024 and December 31, 2023, we served 463 and 392 clients, respectively, representing 6,410,000 and 5,418,000 members, respectively.

Previous wording

We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income, net, interest income, net, and provision (benefit) for income taxes. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with U.S. GAAP, for each of the periods indicated:

Current wording

We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income, net, interest income, net, and provision for income taxes. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with U.S. GAAP, for each of the periods indicated:

Previous wording

Revenue increased by $19.7 million, or 8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase is primarily due to a $12.6 million, or 8%, increase in revenue from our fertility benefits solution and a $7.1 million, or 7%, increase in revenue from our Progyny Rx solution. The increases in revenue from our fertility benefits solution and our Progyny Rx solution were primarily due to the increase in the number of clients and covered lives.

Current wording

Revenue increased by $24.7 million, or 9%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase is primarily due to a $20.8 million, or 12%, increase in revenue from our fertility benefits solution and a $3.9 million, or 4%, increase in revenue from our Progyny Rx solution. The increases in revenue from our fertility benefits solution and Progyny Rx solution were primarily due to the increase in the number of clients and covered lives.

Previous wording

Cost of services increased by $15.9 million, or 8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatment delivered. This increase in cost of services was also attributable to an increase in personnel-related costs primarily due to incremental headcount as well as a $0.8 million increase in stock-based compensation expense.

Current wording

Cost of services increased by $17.1 million, or 8%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatment delivered. This increase was also attributable to an increase in personnel-related costs primarily due to incremental headcount as well as a $0.6 million increase in stock-based compensation expense.

Previous wording

Gross profit increased by $3.8 million, or 6%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Gross profit increased by $7.6 million, or 13%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

Gross margin decreased 30 basis points for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase in personnel-related costs, largely offset by the ongoing efficiencies realized in the delivery of our care management services.

Current wording

Gross margin increased 80 basis points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to ongoing efficiencies realized in the delivery of our care management services, partially offset by an increase in personnel-related costs.

Previous wording

Sales and marketing expense increased by $1.2 million, or 8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily due to a $1.0 million increase in personnel-related costs attributable to an increase in stock-based compensation expense, as well as a $0.2 million increase in other related sales and marketing expenses.

Current wording

Sales and marketing expense increased by $1.0 million, or 7% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase was due to a $0.8 million increase in personnel-related costs mainly attributable to an increase in stock-based compensation expense, as well as a $0.2 million increase in other related sales and marketing expenses.

Previous wording

Other income, net increased by $2.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to an increase in investment income.

Current wording

Other income, net increased by $2.4 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase in investment and interest income.

Previous wording

For the three months ended March 31, 2024, we recorded a provision for income taxes of $5.6 million, as compared to a benefit for income taxes of $1.3 million for the three months ended March 31, 2023, primarily due to higher operating profit as well as a decrease in tax benefits for equity compensation, including discrete tax benefits, in the current year period.

Current wording

For the three months ended June 30, 2024, we recorded a provision for income taxes of $8.6 million, as compared to $2.2 million for the three months ended June 30, 2023, primarily due to the higher operating profit as well as a decrease in tax benefits for equity compensation, including discrete tax benefits, in the current year period.

Previous wording

General and administrative expense decreased by $0.9 million, or 3%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily due to a $0.5 million decrease in bad debt expense, as well as a $0.4 million decrease in other related general and administrative expenses.

Current wording

General and administrative expense increased by $0.2 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This increase was primarily due to a $1.3 million increase in personnel-related costs attributable to incremental headcount, largely offset by a $0.9 million decrease in other related general and administrative expenses, as well as a $0.2 million decrease in bad debt expense.

Previous wording

As of March 31, 2024, we had $115.0 million of cash and cash equivalents and $256.9 million of marketable securities. Since inception, we have financed our operations primarily through sales of our solutions and the net proceeds we have received from sales of equity securities, including our initial public offering. Our cash and cash equivalents and working capital are affected by the timing of payments to third party providers and collections from clients and have increased as our revenue has increased. In particular, during the ramp up and onboarding of new clients who typically begin their benefits plan year as of January 1 st, our accounts receivable has historically increased more than our accounts payable, accrued expenses and other current liabilities in the early part of each calendar year. Historically, these timing impacts have reversed throughout the remainder of the fiscal year. Accordingly, our working capital, and its impact on cash flow from operations, can fluctuate materially from period to period.

Current wording

As of June 30, 2024, we had $95.0 million of cash and cash equivalents and $167.2 million of marketable securities. Since inception, we have financed our operations primarily through sales of our solutions and the net proceeds we have received from sales of equity securities, including our initial public offering. Our cash and cash equivalents and working capital are affected by the timing of payments to third party providers and collections from clients and have increased as our revenue has increased. In particular, during the ramp up and onboarding of new clients who typically begin their benefits plan year as of January 1 st, our accounts receivable has historically increased more than our accounts payable, accrued expenses and other current liabilities in the early part of each calendar year. Historically, these timing impacts have reversed throughout the remainder of the fiscal year. Accordingly, our working capital, and its impact on cash flow from operations, can fluctuate materially from period to period.

Previous wording

Net cash provided by operating activities was $25.7 million for the three months ended March 31, 2024, primarily consisting of net income of $16.9 million adjusted for certain items, which include $31.1 million of stock-based compensation expense, $4.8 million of bad debt expense, $3.4 million of realized gains on the sale of marketable securities, $2.9 million of deferred tax expense, $0.7 million of depreciation and amortization, and $0.2 million of non-cash interest income. Changes in operating assets and liabilities resulted in cash used in operating activities from increases in accounts receivable of $60.1 million, partially offset by cash provided by operating activities from increases in accrued expenses and other current liabilities of $13.0 million, accounts payable of $4.8 million, and other noncurrent assets and liabilities of $0.1 million and decreases in prepaid expenses and other current assets of $15.2 million. These changes were a result of the impact of revenue growth and our operating results as well as the timing of cash collections and payments to third parties.

Current wording

Net cash provided by operating activities was $82.4 million for the six months ended June 30, 2024, primarily consisting of net income of $33.4 million adjusted for certain items, which include $64.1 million of stock-based compensation expense, $9.6 million of bad debt expense, $7.0 million of realized gains on the sale of marketable securities, $5.5 million of deferred tax expense, and $1.5 million of depreciation and amortization. Changes in operating assets and liabilities resulted in cash used in operating activities from increases in accounts receivable of $61.5 million, partially offset by cash provided by operating activities from increases in accounts payable of $26.4 million, accrued expenses and other current liabilities of $8.9 million, and other noncurrent assets and liabilities of $0.4 million as well as a decrease in prepaid expenses and other current assets of $1.3 million. These changes were a result of the impact of revenue growth and our operating results as well as the timing of cash collections and payments to third parties, including $17.3 million of cash paid for income taxes, net of refunds received in the six months ended June 30, 2024.

Previous wording

Net cash provided by operating activities was $21.0 million for the three months ended March 31, 2023, primarily consisting of net income of $17.7 million adjusted for certain items, which include $30.8 million of stock-based compensation expense, $5.2 million of bad debt expense, $1.3 million of deferred tax benefit, $0.5 million of depreciation and amortization, and $0.5 million of realized gains on the sale of marketable securities. Changes in operating assets and liabilities resulted in cash used in operating activities from increases in accounts receivable of $78.4 million and prepaid expenses and other current assets of $1.5 million, partially offset by cash provided by operating activities from increases in accounts payable of $36.4 million, accrued expenses and other current liabilities of $11.8 million, and other noncurrent assets and liabilities of $0.2 million. These changes were a result of the impact of revenue growth and our operating results as well as the timing of cash collections and payments to third parties.

Current wording

Net cash provided by operating activities was $97.0 million for the six months ended June 30, 2023, primarily consisting of net income of $32.7 million adjusted for certain non-cash items, which include $62.6 million of stock-based compensation expense, $9.8 million of bad debt expense, $1.3 million of realized gains on the sale of marketable securities, $1.1 million of depreciation and amortization, and $0.8 million of deferred tax expense. Changes in operating assets and liabilities resulted in cash used in operating activities from increases in accounts receivable of $34.7 million and prepaid expenses and other current assets of $9.2 million, partially offset by cash provided by operating activities from increases in accounts payable of $20.9 million, accrued expenses and other current liabilities of $13.8 million, and other noncurrent assets and liabilities of $0.6 million. These changes were a result of the impact of revenue growth and our operating results as well as new agreements with our pharmacy program partners, which included more favorable payment receipt terms and resulted in an additional receipt in the six months ended June 30, 2023, and the timing of cash collections and payments to third parties.

Previous wording

Net cash provided by investing activities was $19.3 million and $16.1 million for the three months ended March 31, 2024 and 2023, respectively, which primarily consisted of net proceeds from marketable securities of $20.2 million and $17.4 million, respectively. The remainder of the activity for each of the three months ended March 31, 2024 and March 31, 2023 consisted of purchases of computers, software, including capitalized software development costs, and leasehold improvements.

Current wording

Net cash provided by investing activities was $105.4 million for the six months ended June 30, 2024, which primarily consisted of net proceeds from marketable securities of $112.5 million, partially offset by $5.3 million used for a business acquisition, net of cash acquired. For the six months ended June 30, 2023, net cash used in investing activities was $42.8 million, which primarily consisted of net investments in marketable securities of $40.8 million. The remainder of the activity for each of the six months ended June 30, 2024 and June 30, 2023 consisted of purchases of computers, software, including capitalized software development costs, and leasehold improvements.

Previous wording

Net cash used in financing activities was $27.4 million for the three months ended March 31, 2024, consisting of repurchases of $23.8 million of common stock under the share repurchase program and payments of $5.0 million for employee taxes related to equity awards, partially offset by $1.0 million in proceeds from stock option exercises and $0.4 million in proceeds from contributions to our employee stock purchase plan.

Current wording

Net cash used in financing activities was $190.2 million for the six months ended June 30, 2024, consisting of repurchases of $183.7 million of common stock under the February 2024 and May 2024 share repurchase programs and payments of $8.2 million for employee taxes related to equity awards, partially offset by $1.0 million in proceeds from stock option exercises and $0.7 million in proceeds from contributions to our employee stock purchase plan.

Previous wording

Net cash used in financing activities was $1.8 million for the three months ended March 31, 2023, consisting of payments of $3.8 million for employee taxes related to equity awards, partially offset by $1.7 million in proceeds from stock option exercises and $0.3 million in proceeds from contributions to our employee stock purchase plan.

Current wording

Net cash used in financing activities was$3.7 millionfor thesix months ended June 30, 2023, consisting of payments of $7.4 million for employee taxes related to equity awards, partially offset by $3.1 million in proceeds from stock option exercises and $0.6 million in proceeds from contributions to our employee stock purchase plan.

Previous wording

During the three months ended March 31, 2024, we repurchased a total of 723,577 shares of common stock under the share repurchase program for a total cost of $26.4 million, inclusive of excise taxes and trading fees, or an average price per share of $36.27. To date, we repurchased a total of 2,033,139 shares of common stock under the share repurchase program for a total cost of $70.0 million.

Current wording

During the six months ended June 30, 2024, we repurchased a total of 6,316,705 shares of common stock under the share repurchase programs at an average price per share of$29.45 anda total cost of$187.9 million, inclusive of excise taxes and trading fees. To date, we repurchased a total of 6,805,426 shares of common stock under the share repurchase programs for a total cost of$200.1 million, inclusive of trading fees. As of July 2024, the February 2024 share repurchase program and May 2024 share repurchase program were completed, and no amount remained available for repurchase under the programs.

Previous wording

In February 2024, our Board of Directors authorized a share repurchase program of up to $100 million in shares of common stock. Repurchases may be made in the form of open market repurchases, including through plans complying with Rule 10b5-1 under the Exchange Act, depending on stock price, market conditions, and other factors, as determined by the Company. There can be no assurance as to the number of shares to be repurchased by us.

Current wording

In August 2024, our Board of Directors authorized an additional share repurchase program of up to $100 million in shares of common stock (the “August 2024 share repurchase program”). Repurchases under the program may be made in the form of open market repurchases, including through plans complying with Rule 10b5-1 under the Exchange Act, depending on stock price, market conditions, and other factors, as determined by the Company. There can be no assurance as to the number of shares to be repurchased by us under the August 2024 share repurchase program.

Previous wording

In February 2022, we entered into a lease agreement for additional space in our corporate offices in New York, New York, consisting of a 24,099 square foot office and a 21,262 square foot office, and also for continued occupancy of the 25,212 square foot office after the expiration of the current sublease. For the 24,099 square foot office, we will pay the base rent of approximately $1.4 million per year starting in April 2024 for five years and approximately $1.5 million per year thereafter through the fourth quarter of 2035, the expected expiration date. For the 21,262 square foot office, we will pay the base rent of approximately $1.3 million starting in the fourth quarter of 2025 for five years and approximately $1.4 million per year thereafter through the fourth quarter of 2035, the expected expiration date. For our current 25,212 square foot office, we will pay the base rent of approximately $1.6 million per year beginning in June 2029 through the fourth quarter of 2035, the expected expiration date.

Current wording

In February 2022, we entered into a lease agreement for additional space in our corporate offices in New York, New York, consisting of a 24,099 square foot office and a 21,262 square foot office, and also for continued occupancy of the 25,212 square foot office after the expiration of the current sublease. For the 24,099 square foot office, we will pay the base rent of approximately $1.4 million per year through the end of the fifth lease year and approximately $1.5 million per year thereafter through the fourth quarter of 2035, the expected expiration date. For the 21,262 square foot office, we will pay the base rent of approximately $1.3 million starting in the fourth quarter of 2025 for five years and approximately $1.4 million per year thereafter through the fourth quarter of 2035, the expected expiration date. For our current 25,212 square foot office, we will pay the base rent of approximately $1.6 million per year beginning in June 2029 through the fourth quarter of 2035, the expected expiration date.