PGNY - Progyny: Still The Clear Market Leader

2023-04-04 15:55:05 ET

Summary

• Progyny delivered stellar results as client count and revenue grew in the latest fiscal year.
• The expansion of male fertility benefits will only add to the company's already superior solutions.
• Short reports have come out against the organization but I believe there is no merit to them.

Fiscal year 2022 was another wonderful year for Progyny (PGNY). The company continued to grow revenue at an outstanding pace. Client count grew as well as did the number of covered lives.

Given the current economic climate, it was wonderful to see that the company has a very broad and diverse range of clients. The below graph from a recent presentation shows how diverse Progyny’s clients truly are:

This additional graph depicts the various industries being served by Progyny:

I believe the company is heading into fiscal year 2023 with a lot of positive momentum despite the economic uncertainly and the potential looming recession.

This is a firm providing an important benefit to many in the current workforce and I think Progyny has proven and will continue to prove that this firm is the market leader when it comes to providing fertility benefits and family building solutions.

New Offering

Progyny recently announced the expansion of male fertility benefits. According to the company, about one third of infertility cases are due to male-factor infertility issues (such as being unable to create or release healthy sperm). Progyny already had been covering several treatments for male related infertility through its reproductive endocrinology and infertility ((REI)) network. Now Progyny is providing a network of reproductive urologists (RU). Progyny has vetted each RU and believe they have a network of world-class physicians.

Regarding this new offering, the CEO stated , “Infertility impacts millions of people and sperm related infertility accounts for a sizable portion, yet most of the conversation and responsibility falls to the female population. At Progyny, we work to address all areas of infertility to provide the best services and treatments possible to ensure everyone’s dreams of parenthood are realized. Expanding our male fertility offering to include a RU network of best-in-class physicians is a vital step to furthering this mission.”

I think this is a new exciting offering which will only add to the organization’s superior fertility benefit solutions.

Financials and Key Metrics

In Q4 2022, Progyny had another very stout quarter as revenue grew to over $214M, which is an increase of 68% compared to Q3. Most of this revenue was generated from fertility benefits services revenue and pharmacy benefits services revenue accounted for the rest. Fertility benefits services revenue was roughly $143 million, an increase of 60% compared to prior year’s fourth quarter. The increase in clients in covered lives helped drive this growth. Pharmacy benefits services revenue was roughly $71 million for the quarter, an increase of 86% compared to prior-year fourth quarter. The growth was due to the increase in the number of clients.

Client count continues to rise as well as Progyny finished Q4 2022 with 288 clients, which represented an average of 4.7 million covered lives. This compares to 191 clients and 2.9 million covered lives in Q4 2021, reflecting a 60% increase over the last year.

In terms of utilization, a record 12,200 art cycles were performed in Q4 2022, which is a 60% increase compared to Q4 2021.

This slide from a presentation in early 2023 certainly shows this is a strong business and has been driving revenue and profitability for several years:

These are impressive financial results which I believe will likely continue as demand for these benefits will only continue to rise.

Valuation

Progyny is still an expensive stock as it has a trailing P/E ratio of roughly 100. Currently, most analysts view Progyny either as a “Strong Buy” or a “Buy”, but none currently have a “Sell” rating. Also, based on many analysts’ projections, the current stock price is far below analyst price targets.

This is a high valuation, but it is a great business. Nevertheless, I would wait for share price to drop before adding more shares.

Short Reports

Progyny has been the target of short reports from various firms such as Jehoshaphat Research and Spruce Point Capital Management. I would urge investors to keep a level head and due the necessary due diligence before making any hasty sell decisions. In my experience, I’ve found these firms don’t have the essential insight to make such allegations nor do they possess the necessary accounting acumen.

With a 10K statement, I always review the report provided the firm’s independent auditor. This report always provides an audit opinion and describes the firm’s critical audit matters (CAMs). For each CAM, the firm will discuss the matter and will discuss how the matter was addressed during the course of the audit.

Ernst & Young provided Progyny with a clear opinion and described the CAM in question during this audit.

Since Erica Williams has taken over as the Chair of the Public Company Accounting Overnight Board (PCAOB) several large fees have been handed down to bad actors with the accounting profession. Given the serious nature of accounting fraud, I believe independent auditors are doing the necessary work to ensure a client’s financial information is presented fairly.

In the case of Progyny, I trust the firm’s management and their independent auditor far more than I trust a “research firm” that might be trying to make a quick buck.

Conclusion

Millennials are the largest working generation and as the company’s CEO mentioned on the last earnings call, the demand for fertility benefit amongst millennials is “stronger than ever!” I agree with that statement and absolutely believe this will be a benefit more and more employers will provide to their employees over the next decade.

I still believe Progyny has a superior offering with proven results and with lower costs compared to other providers and the expansion of male fertility benefits will only add to Progyny’s superior array of offerings.

I am not concerned about the various short reports on Progyny however I do think the valuation for this company is quite high. Ideally, I’d like to see this company’s stock price drop below $30 a share before buying.

I feel the organization is poised to continue to grow client count and revenue as well as increase their number of covered lives. An economic slowdown could negatively impact Progyny in the current year but for long-term shareholders I believe Progyny will continue to excel.

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