Progyny ($PGNY) – Investor Day – August 13, 2024
Progyny’s team took us through a three hour presentation on how Progyny has gotten where it is, and where it can go from here. Leadership offered their very first multi-year targets and provided more detail on the inner workings of Progyny. CEO Pete Anevski started the event by expressing his disappointment in how 2024 has unfolded and how excited he remains about the future. He took us through a review session on structural macro tailwinds, like rising 35+ year-old fertility rates, more single-mother pregnancy, rising prevalence of infertility and rising frequency of employees demanding coverage. He also reminded us of Progyny’s micro-based tailwinds like consistently growing financial and outcome-based leads over the field. My deep dive got into all of that, but there was a lot of new info that I’ll cover here – along with my event takeaway.
Competition:
Progyny was eager to dispel competitive concerns. The new solutions that have popped up since the pandemic have not driven a “significant change in win rates.” Most of the pipeline that doesn’t convert for the year is due to delayed decisioning rather than losing to new entrants. Less than 6% of its annual pipeline has been lost to competition over the last several years. That includes next-gen disruptors and incumbents. It has also never seen a client won from a national carrier ever go back to that carrier.
Women’s Health Issues – New Products:
Like with fertility, women’s health is plagued with too little research, too little education and too little access. That’s why fertility was Progyny’s initial product. It will only choose new product categories that are related to fertility and riddled with the same issues and inefficiency that allowed it to drive so much value there. For example, endometriosis is directly related to infertility as it causes 4/10 infertility cases. But? It takes years too long for a diagnosis to occur, which means unnecessary treatments and wasted time/money. There’s very little clinical data on this area and very little knowledge on how to address it. Just 7% of physicians are trained to treat menopause, which means extremely sparse access to needed hormone replacement therapy. Progyny just built a 50 state network to bolster that access. Enter Progyny. Pelvic health impacts 70% of women, yet the subspeciality was acknowledged just 13 years ago. Acceleration of education and service access here are needed too, which is why Progyny will debut a product here next year.
Maybe most interestingly, autoimmune diseases skew 80% female. Clinical trials have not focused on females up until very recently. There’s a lot of help Progyny can do here as well for a category of diseases impacting 8% of Americans. For all new products, it’s also seeing an influx of VC funding for new startups, new federal funding and bipartisan support for more research. The structural tailwinds are in place. This image gives us a good idea of what products Progyny thinks it can offer over time:
More Nuggets:
Progyny members pay $1,500 in average out-of-pocket cost with its service. This compares to $48,000-$65,000 on their own. And thanks to 72% fewer high risk pregnancies driven by its superior custom treatment design (described in detail in the deep dive), its clients also end up saving more money via lower NICU usage.
Its new products already have a 15% member attach rate, which directly shows you their ability to cross-sell new solutions in menopause and women’s health. These products have a lower revenue contribution than fertility cycles, but a higher margin. It has more services planned for 2025 launch.
Through global expansion and extension to smaller employers with 250-1000 employees. These employers obviously come with lower revenue per client, but higher margin per client too. As a reminder, it purchased a smaller company in Germany to turbo-charge international expansion.
Progyny has a unique arm of its go-to-market team called its “client success team.” These workers fixate on driving personal relationships with clients and helping them on their product and cycle adding journeys. They’ve been so successful at reaching up-selling targets every year that Progyny’s direct sales team has been able to focus solely on new customers. Within its partner program, it’s seeing a rising appetite for managed providers to partner more directly with Progyny. Progyny has always been competition for them, but Microsoft and Amazon and other early clients forced integrations that nobody else in the space has besides Progyny. That means pre-tax payment of benefits, which saves $10,000+ per cycle across stakeholders. The team also reminded us that partner sales include its full suite of products, rather than watered-down versions like with other competitors such as Kind Body and Carrot.
40% of Progyny’s clients openly and voluntarily advocate for other companies to use Progyny. That’s how impactful its products are.
Financial Targets & My Take:
Progyny guided to a 19.4% revenue CAGR through 2028. That leaves it with “at least” $2.4 billion in revenue, with that language implying there may be more upside. It also guided to a 25% EBITDA CAGR to reach $500 million in 2028 EBITDA, with $400 million in expected operating cash flow. Due to the very low CapEx needs of this business, operating cash flow and FCF are very similar. Revenue targets are 15% ahead of consensus for 2028, EBITDA targets are 20% ahead of consensus, and cash flow is 25% ahead of targets.
When a company offers guidance like this, the stock usually reacts a lot more positively. These are massive beats. The issue is that Progyny’s leadership struggles to effectively guide for one quarter out. I don’t know how anyone can be confident in them knowing what 2028 will look like.
It did offer some new color on how they have visibility into claims and authorizations, which makes guidance slightly less of a crap shoot. It also reminded us that utilization has been very consistent since inception. Still, monetization per cycle has recently crept up as a new confounding variable that makes utilization in isolation a less reliable demand indicator. And again, it just issued its 3rd consecutive guidance reduction this past quarter.
Their 2028 goals rely on continuation of historical trends that are tied to unpredictable biological, macro and geopolitical variables. These goals also rely on new products briskly rising to 9% of total 2028 revenue. That leaves us with a great deal of uncertainty.
And that’s the struggle here. If we assume it trades for a highly modest 16x GAAP operating cash flow, which is highly conservative for its expected growth rates, this is a 4x over the next 4 years for 40%+ compounded returns. If they are just wrong about 2028 and not very, extremely, absurdly wrong, this should still do well. There’s a massive margin of safety. Pairing this idea with its sharp value creation and a team that I just don’t trust, I’m left wanting to hold the small position that I own… but not wanting to accumulate like I normally would.
I appreciated all of the new information shared at this event. It changes nothing about my views towards the investment.
Prove me and everyone else wrong.
