Progyny (PGNY) — Investor Conference — March 16, 2024
On 2024 Guidance:
As a reminder, during the beginning of the quarter, Progyny experienced a treatment mix statistical anomaly. Throughout it, members leaned more heavily on lower contribution products like egg freezing and partial cycles vs. complete Assisted Reproductive Treatment (ART) cycles. This has happened twice in the firm’s 8-year history. Biological needs don’t transform overnight; evolution doesn’t magically accelerate over night. So? In both previous cases, the mix shift anomaly sharply and rapidly reverted. That normalization had already happened when Progyny reported earnings last month. It continued through this investor conference as well. Not at all surprising, but still nice to hear. Progyny’s guide assumes normalization continues through the year, which is a safe bet considering its nearly decade-long operating history and human needs. Its overall utilization rate remains quite strong as evidence of member demand levels remaining robust.
I also wanted to briefly talk through Progyny’s guidance methodology as it was reviewed during the interview. Progyny guides to what it sees. It does not include any incremental or speculative upside in its guidance, which routinely comes. It doesn’t assume any Y/Y growth in utilization rates, despite macro tailwinds like later age of pregnancy and single mother pregnancy proliferation adding to its demand. This is why utilization rate has gradually ticked up in recent years. With just 2% of U.S. births via ART cycles vs. 10% in Israel and Denmark where coverage is much more complete, there’s clearly more upside to utilization rates as these tailwinds continue to play out. So? When it enjoys modest utilization rate outperformance or early client launches, that’s pure upside to its forecast. This is why it so consistently beats and raises, aside from this temporary blip. I expect more of the same beating and raising throughout the year.
Pipeline:
Leadership reiterated that it “feels good about pipeline growth.” Both its “not-nows” (pipeline from last year that didn’t convert but should eventually) and new client pipeline are robust. It also remains confident in its initial government contract leading to many more. It teased that there are some new opportunities for service or agency expansion for its public sector business this year too. The dominos here are beginning to fall, just like they have in every other sector.
Interesting Notes on Coverage:
Despite a mix shift costing Progyny in Q1 2024, it won’t financially hurt it over time. That’s because a lot of the shift has been driven by the aforementioned skew towards partial cycles in early Q1. Retrieved eggs will eventually need to be implanted if a couple ends up deciding to start a family. Progyny’s economic benefit for one full cycle vs. two partial cycles is “roughly the same.” So while there’s some short-term noise in results, that could eventually lead to some upside to forecasts as these partial cycles are completed.
M&A:
Leadership doesn’t seem interested in M&A. It has conviction in developing its male infertility, menopause and other new services into best-in-class offerings internally and organically. It will likely continue to use excess cash to fund its current buyback and perhaps (probably) new buyback programs down the road.
Progyny the Stock:
Progyny the stock has been flat for three years. I continue to hold my shares, add to my stake and not fret over the price action. The best companies in the world make long term investors endure long periods of underwhelming returns. This will be no different. The spring is coiling and shareholder patience is being tested. What has happened since 2020? Progyny has 6Xed its annual EBITDA to $187 million. It has pushed its annual GAAP EBIT from $8 million to $62 million and moved from near-breakeven EPS to expectations of earning $1.57 this year. Revenue compounded at a 47% clip during that time while its outcome leads vs. the field continued to grow and its market share did too.
Progyny the stock will take care of itself if Progyny the company just keeps doing exactly what it’s doing. Returns are never linear.
