Good day, ladies and gentlemen, and welcome to the Progyny Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode, and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. James, the floor is yours.

Thank you, Tom, and good afternoon, everyone. Welcome to our first quarter conference call. With me today are Pete Anevski, CEO of Progyny; Michael Sturmer, President; 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 second quarter and full year 2025, and the assumptions and drivers underlying such guidance, our anticipated number of clients and covered lives for 2025, the demand for our solutions, our expectations for our selling season for 2026 launches, anticipated employment levels of our clients and the industries that we serve, the timing of client decisions, our 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 in 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 and incremental revenue. More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, are available in the press release, which is available at investors.progyny.com. I would now like to turn the call over to Pete.

Thanks, Jamie. Thanks, everyone, for joining us today. I'm pleased to report we've had a good start to the year with double-digit growth in both revenue and adjusted EBITDA over the prior year period, yielding record quarterly results for both of those, as well as gross margin expansion and the generation of significant quarterly cash flow. In addition, we also made meaningful progress in laying the foundation for future growth through both our channel partnerships as well as the previously announced investments to expand our product portfolio and platform, enhance our member experience, and extend our leading position in women's health and family building. As the second quarter begins, we're seeing that member engagement remains consistent with first quarter levels, both in terms of utilization as well as ART cycle consumption. Following the strong start, we're pleased to be able to raise our full year guidance. The guidance for the remainder of the year continues to reflect a range of engagement and activity, taking into account both what we experienced in 2024 as well as the uncertainty in the macro environment, which Mark will detail for you shortly. The forces driving member demand are reflected in the latest market data. The CDC recently reported that birth rates for women 25 and younger are now at record lows, while the rates for women between 30 and 44 continue to increase. To put that into perspective, although the absolute number of babies born in the U.S. was down nearly 8% over the last 10 years, the number of babies born to women 30 years and older was up 15%. This divergence has been happening for decades now and clearly shows that people are increasingly deferring family building to later in life. A different statistic that sharply highlights the significance of this shift is that more than 51% of all births in the U.S. now come from women aged 30 years and older. Not even a generation ago, it was closer to one-third. That's a massive difference over a relatively short period of time and illustrates how for many family building has moved out of our 20s and into our 30s and beyond. The biological reality is that natural conception does become more difficult as we age, which helps to explain the increasing prevalence of infertility across our society as well as the greater need for medical care and support. And the consequences of this shift reach even further as maternal age increases; employers often see increases in their maternity costs given that age is a contributing factor to high-risk pregnancies, high-risk deliveries, and ongoing neonatal care. Employers can proactively manage these risks through Progyny's comprehensive solution. Our maternity solution, for example, focuses on whole person care and high-cost claims avoidance through high-touch clinical management, ensuring that the right care gets delivered to the member at the time that's right for them. This then naturally extends into perimenopause and menopause where early intervention and specialized symptom management can significantly improve the employees' quality of life while also avoiding unnecessary costs for the employers from unproductive rounds of care. At this time of year, HR leaders have begun to consider their near- and long-term benefit strategies, determining what their employee populations need and evaluating solutions to address what's most critical. Given the backdrop I just described, it isn't surprising to see that women's health continues to be a priority for all types of employers. One reason is that employers recognize the commitment they've made with the workforce to provide health care coverage for the diseases and conditions affecting them. Another is that the employment market remains highly competitive, and employers want to recruit and retain the best possible talent. This can be seen in the most recent jobs report. The economy has added nearly 600,000 jobs since January, which comes on top of the 2 million created in 2024, and the unemployment rate has remained at or around 4% for nearly a year. Even though our client base is exceptionally well diversified across 45 different industries, the sectors of the economy driving much of this job growth over the past year, including health care, transportation, financial services, and manufacturing, have been ongoing areas of strength for us. While past success isn't necessarily a predictor of the future, we entered this season feeling well positioned. We're pleased with the level of activity and engagement we've seen thus far. The pipeline in terms of dollars and number of opportunities is comparable to where it was a year ago, even though the average number of lives is lower at this point. The comparable dollars versus the prior year are due to the composition of industries and utilization profiles for those prospects. In context, the pipeline is still building at this time of the year and historically continues to do so through the third quarter. We create pipeline through several channels, including our partner relationships, which now include Cigna as our first national health plan, as well as several large regional plans such as Blue Cross Blue Shield of North Carolina and Blue Cross Blue Shield of Alabama, along with our long-standing partners, CVS and Evernorth. New pipeline is also built through conferences, events, inbounds from benefit consultants, and direct outreach. Early commitments thus far are comparable to the prior year. In every season, our earliest sales activity tends to be driven mostly by not-nows carried over from the prior year. That's been the case this year as well. These are companies who may have had competing priorities that prevented them from making a decision about the benefit last year but are in a better position to do so now. While new sales are crucial to our growth, so too is expanding our relationship with existing clients. In any given year, we've typically seen 20% to 25% of the base take additional services with us, such as Progyny Rx, additional smart cycles, or other fertility services like donor tissue. Last year, 30% of the base expanded in some way, with the increment driven by our newer services in maternity, postpartum, and menopause. We're in our first year with these programs and are pleased with the enthusiasm we're seeing in the market. Although these services are expected to contribute up to 10% of revenue by 2028, we aren't expecting a meaningful contribution in the near term while we continue to penetrate our base and build awareness. Nonetheless, we believe these services over time will meaningfully increase the diversity in our portfolio and deepen our relationship with clients. So far in 2025, we've expanded the solution even further, adding dual services to our comprehensive maternity offering and launching a parent and child well-being program to provide one-on-one guidance for child development, return to work assistance, and support for work-life balance. In short, for this renewal and upsell season, we are in the market with a broader portfolio of services enabling employers to customize a robust women's health benefit strategy.

Thank you, Pete, and good afternoon, everyone. I'll begin with our first quarter results and then provide our expectations for the second quarter and full year. First quarter revenue grew 16.5% to $324 million, primarily due to an increase in the number of clients in covered lives compared to a year ago. The growth rate this quarter was somewhat enhanced by the unfavorable treatment mix shift that we highlighted to you a year ago. Though this was short-lived and only impacted the first quarter last year, there was a negative $15 million impact as we disclosed to you at the time. If we were to normalize for this $15 million, revenue this quarter still grew at a double-digit rate. As discussed last quarter, revenue for the first half of 2025 will include a large former client who has provided for an extended transition period for members meeting certain criteria. In the first quarter, this contributed approximately $31 million, slightly more than the approximately $28 million to $30 million that we had anticipated. Excluding the impact of this client from both 2024 and 2025, first quarter revenue increased 19%. If we further normalize the year-ago period for the $15 million in unfavorable mix from the prior year, revenue this quarter increased more than 12%. In short, whichever way you prefer to look at it, this year has begun with solid growth in our core business. As of March 31, we had 532 clients with at least 1,000 lives, representing an average of 6.7 million covered lives in the quarter. This is consistent with what we had expected coming out of the most recent selling season. I'll note that members this quarter do not include the large client under the transition of care agreement. This compares to 451 clients and an average of 6.35 million covered lives in the first quarter a year ago. Highlighting how even with the loss of that large client, our member base is still up year-over-year, as expected, reinforcing both the scale of the business as well as our diversification. The substantial majority of our newest clients and lives won in the 2024 selling season have already launched at this point, and though a handful of relatively small clients are expected to launch in Q2 and Q3. Turning now to our member engagement metrics. Female utilization was 0.46% in the quarter, consistent with the first quarter a year ago. Utilization this quarter does not include the large client under the transition of care agreement as only a limited number of members meeting certain criteria are eligible to use the benefit, which is not comparable and compatible with how we report the members from every other client. Of course, this client's volume is reflected in our reported ART cycles, which will also enable you to continue modeling our volumes and revenue as you've always done. On that basis, ART cycles this quarter were 16,160, which is our highest quarterly total ever and reflects 9% growth over the year-ago period. Today's press release includes a table to report ART cycles per unique female utilizer. You'll see 0.45—excuse me, you'll see 0.51 in the first quarter, which is consistent with how 2022 and 2023 began, though down slightly as expected from how 2024 began. As one measure that we're seeing engagement return to more typical levels, I'd highlight that the year-over-year differential in ART cycles per unique has been lessening. For example, in Q3 of last year, this metric was 0.52, which was 4 basis points below where it was in Q3 of 2023 at 0.56. Then as of this most recent quarter, that year-over-year differential halved to 2 basis points, 0.51 this quarter versus 0.53 in the year-ago period. With respect to the components of the top line, fertility revenue increased 22% in the quarter to $206 million, while pharmacy revenue increased 9% to $118 million. The differential in growth rates reflects a comparatively lower proportion of treatments requiring a pharmacy component versus the prior year period, which you can also see reflected in the lower ART cycles per unique. Turning now to our margins and operating expenses. Gross profit increased 21% from the first quarter last year to $76 million. This yielded a 23.4% gross margin, an improvement from the 22.4% margin in the prior year period due to the unfavorable mix shift in the year-ago period as well as some other timing items. For the full year, we expect gross margin expansion over 2024, although not quite at the same level we saw in Q1 due to additional hiring and other investments contemplated in the plan. Sales and marketing expense was 5.5% of revenue, reflecting a modest improvement from the year-ago period as our economies of scale are helping to offset the investments we're making to expand our go-to-market resources and channel partnership relationships. G&A was 10.4% in the quarter, slightly higher than the first quarter a year ago, reflecting the previously disclosed investments we've begun to make to expand our product platform and integrate our recent acquisitions. We expect these investments will continue to ramp in the second quarter and continue over the remainder of the year. Although dollars of adjusted EBITDA grew 15% to $58 million, the impact of our investments is seen as expected in the adjusted EBITDA margin, which declined modestly from the year-ago period to 17.8%. Net income was $15.1 million or $0.17 per diluted share in the quarter. This compared to net income of $16.9 million or $0.17 per share in the year-ago period. The decrease was primarily due to a higher provision for income taxes, including the impact of discrete tax items, which more than offset the higher operating profitability. Adjusted EPS was $0.48 in the quarter, which compares to $0.39 in the year-ago period. Turning now to our cash flow and balance sheet. We generated nearly $50 million of operating cash flow in the first quarter, nearly double the prior year period. The increase is due to the higher profitability as well as the timing of certain working capital items in both periods and reflects our high rate of conversion of adjusted EBITDA to operating cash flow. Looking beyond operating cash flow, you'll see we incurred $2 million in incremental CapEx this quarter compared to the year-ago period. This was expected and reflects the investments we described to you last quarter and our member experience and acquisition integration activities. We continue to expect the incremental CapEx for these projects to be approximately $15 million over our 2024 spend. As of March 31, we had total working capital of $331 million, reflecting $256 million in cash, cash equivalents, and marketable securities and no debt. As compared to the year-ago period, DSO improved by 14 days, reflecting our ongoing discipline in revenue cycle management, though DSO did increase as usual on a sequential basis due to the ordinary seasonality that we see at the beginning of the year driven by the timing of treatments, client starts, and other factors. Turning now to our expectations for the second quarter and the year. As the second quarter begins, we've continued to see member engagement at levels consistent with the historical range. Nevertheless, given the unexpected variability we experienced at certain times in 2024, the assumptions we're making today reflect the possibility that we'll see further variability in activity and treatments in the future. As you can see in the table on the last page of today's press release, we continue to expect that full-year utilization will remain at 1.02% at the low end and 1.04% at the high end. In terms of consumption, even though the year has become slightly better than we originally expected, we're maintaining our assumption on our cycles per unique at 0.89 at the low end of the range and 0.91 at the high end. With these assumptions, we're projecting between $310 million to $325 million in second quarter revenue, reflecting growth of 2% to 7%. This includes between $12.7 million and $14.7 million in contribution from the client under the transition of care arrangement. If we exclude that client's contribution from both periods, second quarter revenue growth is expected to be between 11% and 16%. On profitability, we expect between $49 million to $53 million in adjusted EBITDA in the second quarter, along with net income of between $11.5 million to $14.5 million. This equates to $0.13 and $0.16 of earnings per share or $0.40 and $0.43 of adjusted EPS on the basis of approximately 91 million fully diluted shares. Given our strong start to the year, we're pleased to be in a position to raise our full-year guidance. We now project revenue of between $1.185 billion to $1.235 billion, reflecting growth of between 1.5% and 5.8%. This assumes a contribution of $44 million to $46 million of revenue from the large client under the transition of care agreement. If we exclude that client from both years, our full-year revenue growth is estimated to be 11% to 15%. We also expect between $190 million to $203 million in adjusted EBITDA with net income of between $42.4 million to $51.8 million. This equates to $0.46 and $0.56 earnings per diluted share and $1.54 and $1.64 of adjusted EPS. We on the basis of approximately 92 million fully diluted shares for the year. And with that, we'd like to now open the call for questions. Operator, can you please provide the instructions?

Thank you very much. We’re now opening the floor for questions. Your first question is from Anne Samuel of JPMorgan. Please go ahead.

Congratulations on the impressive results tonight. And Pete, congratulations on your recognition in Time Magazine; it's great to see the focus on fertility benefits as well. Historically, we generally observe an increase in cycles per utilizer from the first to the second quarter. However, based on your guidance, it suggests a similar rate in the second quarter compared to the first quarter. I'm curious if this is intended to account for the uncertainty you mentioned, or if there are other factors that might affect how we should interpret the usual seasonal patterns of utilization.

Annie, thanks so much. Yes, we're excited for the recognition. We're proud of what we're doing here. So, it's great to see that. As it relates to your question, it is more around having the guidance reflect the uncertainty than it is something that we're seeing is the simple answer.

Helpful. And then maybe just one more. You called out the gross margin expansion this quarter, and it was up really nicely. I was just wondering, can you speak to the drivers there and just how we should be thinking about that line for the rest of the year?

Yes. As I said in my prepared comments, I think you have to take into consideration that last year was a bit suppressed given the revenue shortfall from the mix issue. Again, we typically are leveraging our internal folks as revenue grows, and that was an unexpected reduction in revenue. So, we were a bit suppressed last year. We had a good quarter this year. I think, again, as we continue to make some of the investments that we've been highlighting, a portion of those do actually hit in our cost of services area and will bring gross margins down. We haven't necessarily guided to a specific number for the year, but we do expect it to expand for the full year versus the full year of '24. I hope that's helpful.

Your next question is coming from Jailendra Singh of Truist Securities. Jailendra, your line is live.

Congrats on a strong quarter and congrats, Pete, on the recognition. I want to follow up on your comments around the 2026 selling season. I know you guys noted that it is still early, and most of the sales have been not now from last year. But outside of that, are you seeing any indications of employers putting the RFP process on hold? Are things taking longer, which could mean the decision-making could be a little delayed this year? And related to that, you also talked about the sales goal for the year. Is your sales goal similar to your historical target of adding as many lives to the year prior? Of course, it's 1.1 million lives excluding Amazon?

Yes. It's Michael. Thanks for the question. So first, yes, our sales goal is the same as it is every year. We're trying to bring on as much new business as we can. As we said on an Investor Day last summer, we're targeting at least to add 1 million new lives each year. So that's unchanged. As for the pipeline, you sort of referenced it. It certainly is early, and there's certainly a lot more pipeline ones ahead of us that we continue to bring on new opportunities. From a comparable perspective, the number of opportunities and dollars are comparable to the prior year, while we're seeing the average lives lagging a little bit compared to last year. That could be a lot of factors; that could be timing. Certainly, some of the macroeconomic environment aspects could be driving a little bit of that and a little bit of uncertainty in some businesses. But we're certainly seeing a wide array and diversity within employers that we have in the pipeline.

And then...

Pete, would you add something?

Yes. Specifically, to your question, we're not seeing a slowdown or pauses, if you will, the way you were describing it in RFP activities or processes that are started; that's not what we're seeing. I just wanted to make sure we just answered that question specifically.

Okay. And then my follow-up, I want to ask about the 16.3% incremental adjusted EBITDA margin on incremental revenue in the quarter. Can you share some thoughts on that metric? Where do you see that metric trending near term? And how do you think about the path to getting this metric back to that historical 20% plus longer term?

Yes. We had talked about it at our previous call at year-end when we put out our guidance for the year overall. The expectation for this year, in particular, due to the incremental investment that is going to hit the P&L as well as incremental investment, which we called out, that will be higher CapEx is, I'll call it, onetime-ish, if you will, right? So overall $15 million of incremental P&L expense relative to the investments in the platform and the product expansion and the investments in the acquisitions that we made is going to hit the P&L this year, makes a big difference relative to margin and incremental revenue. So, when you talk about the short term, that's sort of how you should look at the year. But those are all important initiatives that will continue to position us and hold our position as the leader in the space.

Your next question is coming from Michael Cherny of Leerink Partners. Michael, your line is live.

This is Ahmed standing in for Mike Cherny. Congratulations on a strong quarter. I wanted to inquire about the new modules you've been introducing. I appreciate the details you've provided, but could you elaborate on which modules are currently attracting the most interest? We would be interested in any further insights on how you anticipate they will ramp up in the long term to meet your extended targets.

Yes. I think, well, it depends on how you define interest. From a sales perspective, last year and so far early this year, all of the models, if you will, are getting interest where we had 20% of clients overall last year, and as the sales year is starting this year, by one or more of the new modules. As it relates to engagement with the modules, there's a higher level of engagement with the menopause product. The reason for that is that it's a much larger addressable audience compared to the maternity product. And so that's probably the easiest answer.

Got it. And if I could ask another one, are you noticing any incremental concern from employers in your conversations with them about 2026? I know you commented about the selling season; it's really early, but just any sort of hesitation there?

I think, again, as I was referencing earlier, there are certainly opportunities and dollars are comparable to last year. Average lives are lagging a little bit, and again, it's hard to speculate at this time. But there could be a little bit of the macro environment as a factor creating some uncertainty with some businesses. Though it's certainly not all businesses. That's also why it's important as you look at our book and with over clients in over 45 different industries, right? That diversification really comes into play here, and we're seeing that in the pipeline as well.

Your next question is coming from David Larsen of BTIG. David, you are now live.

Congratulations on the good quarter and the sort of resurgence in revenue growth. Can you talk about potential tariffs on your book of business? Could that possibly increase your costs of goods for your members, like the specialty medications or not? And would you be able to sort of pass those along to customers or not? Just any color there in terms of your own cost base? And then what you might be hearing from clients or customers' health plans? Is this even a topic of discussion or not?

Relative to existing tariffs that are announced, not really an impact for us on costs. Relative to comments that are out there around potential tariffs on pharmaceuticals, based on what's been discussed to date, end-state drugs don't appear to be something that's being considered in terms of tariffs, but tariffs on potentially materials that go into drug manufacturing. So, hard to say; hard to say if it will have an impact. We do have flexibility in our arrangements with our clients should there be an increase, but that's not the only lever that we have. We would also work with our industry partners to collectively mitigate the impact to plan sponsors, essentially how I think about it.

Okay. And then just another quick one. It seems to me like with the 100 basis point increase in the unemployment rate that we saw last year or the last 1.5 years, with rising interest rates, that may have been faster in the temporary slowdown in '24, but it seems to me like that's really stabilized now that we're post-election. Just any thoughts on Trump's views on fertility? I think you said he wanted health plans to cover IVF. Just any thoughts there? Will that have an impact or not?

There is an executive order from February that requested recommendations on protecting access and addressing affordability. The update from that executive order is expected around May 19, unless there are changes. Overall, the intent of the order is positive regarding those two issues. However, there hasn't been much information shared regarding the direction of the recommendations. It is difficult to predict how favorable they may be based on the executive order's content. It’s important to note that these are policy recommendations, not legislation as currently outlined in the executive order. We'll have to wait and see, but I believe the overall sentiment of the order is positive for IVF.

Your next question is coming from Sarah James of Cantor Fitzgerald. Sarah, your line is live.

You mentioned not anticipating the gross margin beat to continue through the year due to investments. But given the size of the beat, it implies a pretty sizable investment. Could you go into a little bit more detail on what those are? How much is hiring, and what are the non-staff-related investments?

Yes. Overall, we talked about the incremental investment related to both the platform and the product capabilities and expansion and the investments in the acquisitions to be roughly overall $15 million. The details of it, I'm not sure would be constructive relative to how much of that is hiring versus other things. But nonetheless, we had sized it, and that number is still our estimate of the impact for this year.

Got it. And then one follow-up on the tariff discussion. If there are tariffs on some of the ingredients, do you anticipate it could have any impact on the timing of drug shipments or availability?

Again, without any more visibility into what might happen, I don't anticipate that. I'm not sure why a tariff might impact the timing of shipments. But beyond that, I can't speculate.

At this time, I don't see any further questions in the queue. I will now hand back over to James for any further comments.

Thank you so much, Jenny. Thanks, everyone, for joining us this afternoon. Please feel free to reach out to me in the next few days or otherwise, I'm sure we'll see many of you next week at the Bank of America conference. Thanks again for your time.

Thank you very much. That does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful rest of the day. We thank you for your participation.