Good afternoon ladies and gentlemen and welcome to the Progyny Inc., Third Quarter 2020 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. [Operator Instructions]. It is now my pleasure to turn over to your host, Vice President of Investor Relations at Progyny Inc., James Hart. Sir, the floor is yours.

Thank you, Katherine and good afternoon, everyone. Welcome to our third quarter conference call. With me today are David Schlanger, CEO of Progyny; and Pete Anevski, President and COO; and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about our financial outlook for the fourth quarter and full year 2020 and full year 2021, our clients and member outlook for 2021, the impact of COVID-19 on our business, clients, member activity and industry operations, our ability to acquire new clients and retain existing clients, our market opportunity, size and expectation of long term growth, our corporate governance plans, business performance, industry outlook, financial outlook, strategy, future investment plans and objectives, and other non-historical statements as further described in our press release that was issued this afternoon. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Progyny's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10-Q. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA. Reconciliations with the most comparable GAAP measures are also available in press release, which is available at investors.progyny.com. I would now like to turn the call over to David.

Thank you, Jamie and thank you everyone, for joining us this afternoon. We hope that each of you and your families continue to be well. As we approach the end of 2020, a year unlike any we've seen before, I'm happy to report that Progyny has not just weathered the COVID pandemic but has flourished. We expect to enter 2021 with approximately 180 total clients and 2.7 million members, which are increases of 36% and 29% respectively, from Q1 2020. Our ability to enter 2021 with such positive momentum is the result of two key factors, our high rate of retention of our existing clients and the positive results of our selling season. We had a strong selling season which Pete will walk you through in detail in a few moments. But let me first address the retention of our existing client base. We have previously discussed how our client retention rate has historically been virtually 100%. And we are pleased to have been able to maintain this high rate for 2021 with no client reducing their coverage, and some even choosing to expand their coverage next year, either by adopting Progyny Rx or by adding Smart Cycles or other services such as Egg Freezing. While our high client retention rate has always been significant, it is somewhat underappreciated aspect of our business. Our ability to sustain it this year, in particular, despite the ongoing uncertainties caused by this macroeconomic environment, truly validates the value our clients are realizing through the Progyny benefit, not to mention how important this benefit is to the employees. We are able to continuously reinforce that value and importance by generating and reporting on, among other things, both our net promoter scores, which are routinely in the 70s and 80s. A level that is remarkable…

Thank you, David. I'm pleased to be taking on this new role. It's such an exciting time for the company. And I look forward to meeting those of you on the call today, either at one of our upcoming conferences, or through some other event. I'm sure you'll find that my approach in communicating with investors is very similar to Pete's. David, Pete, and I, will continue to work very closely in setting the direction of the business. Turning to our results this quarter. I'll begin with our utilization since that has the largest impact on the results. Last quarter, once patients were able to return to care, we discussed how we saw our member activity rapidly recover, even eventually stabilizing at a level that was slightly lower than we would have normally expected to see or if not for the disruption from the pandemic. We also discussed how we saw a relatively consistent level of activity across the country even in those areas where code infection rates remained high or were worsening. This clearly demonstrated that when clinics are open and providing their full range of services and our members are not otherwise affected by stay-at-home orders, they may limit their day-to- day movements. The significant majority of our members who need care will pursue it. The desire to have a child is very strong, and our members understand the urgent nature of these treatments. During the third quarter, our utilization ticked up modestly, as compared to the approximately 90% of normal levels that we saw as we exited the second quarter. As a result, our utilization for the third quarter was point 0.51% for all members and 0.44% for female utilizers, which was down only slightly from the respective utilization rates of point 0.52% for all members and…

Thanks Mark. As David mentioned, the opportunities available to Progyny are significant. And we are well positioned to continue Progyny's rapid growth. So I'll begin by addressing some of the specific factors driving our growth in 2021 and beyond. Our selling season for new clients is now already complete. And we are pleased to have received commitments from 45 new clients representing approximately 400,000 new covered lives. These newest clients selected robust coverage levels for their employees, with a typical client opting to provide two or three Smart Cycles and we continue to see an uptick in the rate of adoption for Progyny Rx, with 83% of our newest clients taking the pharmacy benefit, which compared to 75% of the new clients last year. In addition, we also saw a slightly higher percentage of our new clients who are adding facility coverage for the first time. These results are consistent with what we expect and when we discussed the status of our selling season with you last quarter. As a reminder, we also told you last quarter that we generated a very healthy level of sales activity. But that a meaningful number of prospects in our pipeline ultimately determined this wasn't the right time for them to make any benefit changes, given that the COVID response plans needed to be the highest priority. The majority of these prospects remain in our pipeline as, not now deferred accounts. Historically deferred accounts have been an important source of new business for us in subsequent years and we expect that to be the case again in 2021 selling season. In fact, the number of not now accounts from past selling seasons that we've eventually won has been increasing every year and the 2020 selling season was no exception. This year, the former not…

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

Good afternoon guys, thanks for the question. I guess I just wanted to start off by just making sure I get the dynamics right. So covered lives, I believe you're referring to members. And if so the 400,000 new across 45 new clients implies about 8.9 call it 9000 per client, obviously below the overall average of 3Q and but we've been using something a bit higher. So I guess the first question I have on that is, just any discernible dynamics that drove the mix shift towards smaller employers? And how would you tell us to think about the right number to be using kind of on a go forward basis?

Yeah, I think that the commentary on the average lives is simply this, what we saw and Pete mentioned in his remarks is that there were a meaningful number of clients - of prospective clients that told us not now. Higher percentage of those not now's were from the largest employers, which the most - which had the most complex kind of employee footprints, if you will, with locations across the country. And given kind of the size and complexity of their workforce, they really, at a higher percentage determined to make no changes to their benefits this year, and deal with employee related issues. Companies that were somewhat smaller that again, had less complex workforces were actually able to make decisions. And I think that was, that's the primary factor driving the lower average number of lives per customer. And we talked about the pipeline we go into next year. That pipeline includes, many of those extremely large employers that we would typically see in a year. But, again, it's - it was an unusual year, from a selling perspective. But those factors didn't apply to all employers. You know, just recently, we landed at 40,000 life group. So, I would say, in general, it was more difficult for larger employers to make benefits decisions, and that was driving it, but I wouldn't say it was the universal case. I don't know if you have anything to add to that, Pete?

No, no, and in terms of going forward, what we've been able to achieve the past is what I would continue to assume, I'd view this sales year as an anomaly for the reasons that we already said.

Got it and that at all makes sense to me. Yeah, and I mean, 45 net new clients is obviously a pretty decent outcome considering. Okay, so I guess then, the more important question in certainly in some ways, it would just be about '22 now; you sort of called it a very robust pipeline. We've talked a lot about not now's in the last few months. I know it's obviously very early, but are you guys sort of setting up for a meaningfully better selling season in '22? Like, how are you thinking about that? And where would you want our expectations to decide at this stage?

That's how we're thinking about that.

Yeah, the short answer is yes.

Much better.

And the hope is that the pandemic, at least related to treatments and hopefully even vaccines will be, much more under control by the spring. And will be a factor in the U.S., but not as much of a factor as it is now, in terms of decision making, and therefore, will - won't impact the selling season like it did this year.

And the only other comment I tell you is, again, as we said in the prepared remarks, we're still pursuing a number of opportunities. We're also pursuing a number of opportunities already for 2022 launches, because some of those not now's that, actually, we hope - we heard earlier in the year have already come back and actually want to engage in a dialogue. So once they got past the kind of the - once these companies get past the kind of the confusion and all the things that they had to do to put in place to prepare - to actually get through this and deal with the remote workforce, they can get back to kind of normal business, which is optimizing their benefit plan. So we're already starting to see that. So as Pete said, right, when you ask the question, we do expect a meaningfully better sales year next year.

Okay. And I'm sorry, meaningfully better versus this year, for sure. But sort of versus prior expectation or normal expectations, kind of what I was getting at.

Yeah, at least back to normal, you know, if not above that, considering the impact of this year.

Yeah. Okay, great. That's really helpful. Thank you, guys. I appreciate the color.

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

Thanks, good afternoon. I know that 2021 of that at least $525 million is just the baseline. But you posted upside and raised the guidance for 2020. So the implied growth actually comes down a bit for 2021, just trying to get a sense of sort of conservatism or if you can help well just the underlying assumptions that you have at this point and if they've changed at all? Thanks.

Yeah, I wouldn't believe it all is conservatism. Remember, it's just, it's a minimum, and we put it out there and Q2, because we were getting a lot of questions around what kind of progress, we're making this selling season, what the impact of COVID was, etc. And we wanted to give some clarity that it wasn't a throwaway year from a sales perspective. And since we're now in a position to put out a range of guidance or full guidance, for the reasons that we said that utilization levels early in the year are very instructive. We didn't think it was meaningfully beneficial to change that number or do anything with that number without being able to put a full range out. So we will be in a position to do that come year end. But I wouldn't view it as anything, but a floor that we put out there, in Q2 and a floor that we're still comfortable with, in terms of a minimum, but that means nothing, based on where we're going - where we think we can get to.

Okay, all right, fair enough. Make sense? And then, want to talk about margin expansion, impressive, certainly in the quarter. And you've talked about some natural leverage on the better top line. But you did well to manage cost last quarter as well or certainly in uncertain times. So I guess the question is, is some of the benefit, tighter cost management that may not be sustainable? And I know you implied sort of 4Q comes down, and you mentioned, I think onboarding cost, just any more sort of clarity around sort of the margin profile, and maybe expectation of continuation of that? Thanks.

Yeah, I think, thanks for that. Again, typically, we see it drop more, we brought on people that we might have in previous years, bring on throughout the fourth quarter. So we're sort of already at the place that we're going to be, I think what's really driving the improvement this quarter is around our relationships with our pharmacy and manufacturing partners, the higher volumes that we're driving in, in prescription volumes is what's triggering improved rates throughout our contracts. So as we continue to grow, whether it's next quarter or throughout next year, we'll continue to enjoy those lower pricing on cost. So, so it is a sustainable margin expansion. And we'll go from there.

Right, the other piece, just to add to what Mark said is, related to the positive result versus what we put out from a guidance perspective, there were a couple of dollars that we had, in case we needed any money for physical open enrollment events, should anybody choose to do that. None of those occurred everybody stayed completely virtual and is planning to do the same thing for Q4, so where we would also have some spending in Q3, in advance of Q4 open enrollments. That didn't occur either. So it wasn't necessarily cost containment, it was more, a level of events that we plan just in case it didn't happen.

Okay, that's helpful. Thank you.

Your next question is coming from Sara James from Piper Sandler. Your line is live.

Thank you. I'm trying to bridge the guidance for '21 on lives to revenue guidance. Can you give us some insight on revenue per cycle and utilization assumptions baked in? Are you assuming any kind of growth on either of those?

Yeah, right now, both are relatively flat. And sort of a simple way to think about the $525 million minimum that we put out there is if you look at sort of - if you looked at run rate, let's take Q4 run rates, as a simple example. Take Q4 run rate, annualize that grow it based on the lives growth, that alone will get you there. If you sort of add to it the fact that higher uptake in pharmacy, that gives you a little upside off of that. If you add to that upsells that we had, that gives you a little upside to that. So that's sort of the simple way to do it. But the overall assumptions aren't any change in revenue per cycle. And right now, we're assuming it, and it worked out. Not that that - not that, we just do a simple assumption, we do it company-by-company in terms of who we sell. But the utilization rate that we're expecting from the new clients is about what we're experiencing in our business now, give or take.

That's great to hear that conservatism baked in. And then just wanted to understand your earlier comments, you talked about for this year, a good amount of your new sales came from people that were previously saying not now. Can you go into a little bit more detail, so generally, how much of your forward years pipeline comes from that not now group? Or how much visibility do you have?

Well, it's a couple things right. And I'll go back to the other time, I don't know that I would call conservatism. Again, we haven't put out a full range, where should we just talk about the floor that we put out from a minimum revenue perspective. When we put out the full range at year end, we could sort of go through the more details then. Regarding the -

The not nows.

Oh, sorry, regarding the not nows, number of accounts that have come from not nows this year is the highest it's been as a percentage of total sales and grew versus last year. Last years, the same thing was higher than the year before. And the year before that was the same thing. And so the number of accounts now, that came from, not nows this year was about a quarter of them, right? Last year, it was something in the 12%, 14% range, right? Just to give you an idea, I forgot the exact number but sort of the low-teens as a percent of overall, the 57, I think it was clients that we added last year versus this year was almost 25%. So the point is simply that it's growing, it's growing more, maybe like 27%. It's growing more, and the visibility we have is we keep in contact with them, as you might imagine. And one in particular, David mentioned the 40,000 life account, they actually started - we started engaging with them in 2017. And so sometimes not nows so will take that along. And again, not for any reason that it took that long for them to realize and appreciate that the benefit is an important one, that their members would find, and there might be a need. It's more so that again, they always have other priorities they'd have to deal with and this is the year they chose to, they chose to take on the benefit. So the visibility is never perfect. There isn't enough history around when they convert, different percentages of them convert in the next year versus two years later. In each year, there's not enough volume for us to say it's that predictable. But all we could say is, we continue to engage with them and they continue to come back and more and more of them come back each year.

Yeah. And this year, there is a new category of not nows and these were COVID not nows, which we never had those before. So obviously no, no history to know how they'll convert, but this was a new category for this year.

Thank you.

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

Great. Thanks so much. One more ramp up on this client number and then perhaps another question. The 400,000 lives, are we safe to assume this for modeling purposes, that's just from the new members. And then there's another assumption that you'll make in terms of potential new adds within your existing book or is the 400, the starting point that you have for - from the baseline for the end of this year?

Well, it's you're, it is 400,000 from the new clients that we added this year. And if you just sort of do the math in terms of what we had this quarter on average, and add the 400. And but we're saying we're going to start the year with 2.7, there's a 100 already in there, relative to, when we exit the year versus using an average during the during the quarter, that's going to be there. And the base of client, the lives as they did this year in our book of business, the base book, if you will, will grow little by little all year long. So there'll be some growth throughout the year beyond that two points.

And some of the upselling we do, Mike also includes adding new populations within an employer. So it's not a new sale, but there may be additional lives added to the coverage.

Thanks. That's helpful color to build off of the initial number. And then I guess just one other question. You've talked about this in the past but especially if the cash balance continues to build, especially as we went through the selling season, and continue to pitch the wares, especially continue to pitch, and you just talked about successfully some of the upsell you had, in particular on pharmacy. How does that factor into the leg of development for the next couple of years in terms of other opportunities, you have to continue to drive that upsell potential and what that could mean in terms of, a continued revisiting valuation, whatever you want to call of a potential bolt-on M&A?

Yeah, I mean, I think as I, as we probably talked about on the last call, now that we've kind of gotten the business back on, it's more normal trajectory after kind of the COVID interruptions. And we're actually spending some time together as a senior management team. We're - we've definitely redoubled our focus on some of those more strategic opportunities that, as you correctly point out, we now have the capital resources to go pursue. So, those discussions are certainly underway and the analysis is certainly underway. And when we have something more definitive to talk about with the Street, we will do that. But right now, I think what you all need to know is that we are certainly working on opportunities to expand our footprint, if you will, and that could be additional services or additional markets.

Great, thanks David.

Your next question is coming Glen Santangelo from Guggenheim Securities.

Oh, yeah. Thanks for taking my question. Yeah, thanks for taking my question. I just want to follow up on the 4Q guidance. I mean, it seems like you had a pretty good quarter in 3Q. And if you look at sort of the accelerating COVID case growth, is that having any impact on the way you're thinking about 4Q. I was kind of curious if you could maybe comment on October and what you're seeing in terms of exit rates in October, if there's anything to assess, because the way you have 4Q model is you have the revenue sort of model down sequentially and that's a little surprising? Thanks.

Yeah, so the guidance range that we've provided, does contemplate what we've seen through the end of Q3 but also what we've seen to-date now through October, and we have good visibility throughout the rest of this month of November and actually into December. And one of the things that we take into consideration is that, the latter part of December, usually there's a bit of a trail off. Now, what we don't know is, is part of the ongoing strength that we're seeing related to people who are accelerating treatments because they want to get started and get underway before things, perhaps decline from a pandemic standpoint. We don't know that. So, the lower end of our guidance range, contemplates that, if that is the case or if things continue to degrade, and that there are some, perhaps regional stay-at-home workers, we may shade closer to the lower end of the range. But based on what we're seeing today and through October and early November, we're sort of right at that, right within the range and perhaps shading towards the higher end of what we've provided.

Yeah, one thing I would add is we're not we're not expecting an industry wide shut down like we saw in March, the fertility industry is practicing with safety protocols now and despite the fact that the virus is at kind of the highest levels it's been since pandemic is started. In many geographies, the local health officials are not - we've not seen any movement to limit access to facility treatments like they were doing in March. And that was largely driven by hospital capacity, availability of PPE etc. So again, we're not - one of the concerns we don't currently have is that there'll be that kind of industry wide shut down. But given how severe the outbreak is, there could be some level of patient activity that patients are more reticent to get into treatment and as Mark said that, that's what the lower end of the range contemplates.

Okay, maybe if I just ask one follow up on the selling season. Pete, in your prepared remarks, you suggested that there was about an 85% uptake rate on Progyny Rx with the 45 clients added versus 75 in the selling season last year. Could you give us the number as to what percentage of your total book right now is using Progyny Rx and help us think about the economics of the revenue per client? How much it grows when they add that service?

Yeah. The current - current level clients that have Progyny Rx is 70%. It was 83%, by the way, in the selling season versus 75 last year. And generally speaking and it vary slightly based on concentration of members in certain parts of the country because rates differ, but in general, it's about 45 % to 50% of the medical revenue when you add Rx.

Okay and I'm sorry, maybe just one last one. In that assumption around the $525 million that everyone's focusing on, do you have any mid-year starts sort of contemplating in that number? Or is that just based on the business you have now?

There's a few less than there were last year. So I think there's three, I believe out of the 45. And they're not mid-year, well one is mid-year, and two of them are sort of during the first quarter, I believe. And last year there was a higher proportion, starting in Q1 and Q2, of the clients that we saw last year.

Okay, thank you very much.

Your next question is coming from Anne Samuel from JP Morgan. Your line is live.

Hey, guys, congrats on the nice quarter.

Thanks Anne.

Thanks Anne.

I was hoping maybe you could provide a little bit more color? You spoke to existing clients adding more benefits, how broad-based is that? What are they adding? And then, are some of the new clients that you're seeing coming on providing more generous benefits versus previously, what you'd seen in new clients? Thanks.

I'll start with your second question first. Generally speaking clients, the biggest dollars on the medical side, clients are generally doing a typical two to three cycle benefit. And then they typically also do egg freezing. That's been relatively consistent, I would say not materially different. The Rx, as I mentioned, already, is slightly higher than it was last year. And then, in terms of upsells, clients are adding, those things. So either add a cycle, they'll add Rx, they'll add egg freezing, they may add a couple of lives as David mentioned, where they maybe had a small group that wasn't part of the benefit, and they added it, those kind of things.

Very helpful. Thank you.

Yeah, I think Anne, the more interesting thing is even in a tough year where there's a lot of companies are experienced - experiencing P&L pressure, across our book of business, we didn't have one customer that actually sought to skin down the benefit.

So, that's great.

So just the opposite. They were - those that wanted to make a change were making a change, and making the benefit more robust.

There are no further questions from the lines at this time.

Thanks, operator. If that's the case we can now - we can close out the call.

Yeah. Thank you, everyone, for joining us today. We'll talk to you next quarter.

Bye-bye.

Thank you, ladies and gentlemen, this does conclude Progyny Incorporated third quarter 2020 earnings conference call. Thank you for your participation. You may now disconnect your phone lines. And have a wonderful day.