Progyny: Downgrading As Uncertainties Increase

Core Insights - Progyny's Q2 results were disappointing, leading to a significant stock sell-off after the company lowered its full-year revenue guidance [1][16] - The company is down over 40% year-to-date and nearly 30% since the last analysis, prompting a downgrade to a "hold" rating due to management's lack of visibility on business performance [1][16] - Despite current challenges, the long-term growth thesis remains intact, supported by recent data from the company's Investor Day [1] Financial Performance - For Q2 2024, Progyny reported revenue of approximately $304 million, a 9% increase year-over-year, with fertility benefits services revenue at nearly $194 million, up 12% from the previous year [7][9] - The company expects revenue for the full year to be in the range of $1.165 to $1.2 billion, down from previous guidance of $1.23 to $1.27 billion, reflecting a growth rate of 13% to 17% [4][16] - Net income for Q2 2024 was $16.485 million, compared to $14.991 million in Q2 2023, indicating a positive trend in profitability [9] Utilization and Guidance - A significant factor in the stock price drop was a decline in user utilization levels, with estimates for 2024 utilization rates dropping to 0.95 to 0.96 from 0.99 in 2023 [4][16] - Management acknowledged the variability in utilization but could not provide clear explanations or predict its persistence, raising concerns among analysts [4][16] Growth Potential - Since going public in 2019, Progyny has expanded its client base, leading to increased revenues and a higher EBITDA margin, with a projected revenue target of over $2.4 billion and adjusted EBITDA of at least $500 million by 2028 [5][6] - The company aims to grow covered lives to 11.5 million and maintain a high retention rate of 99%, with annual spend growth for current clients at 20% [6][5] - Recent product rollouts and an acquisition of a Germany-based fertility benefits company are expected to enhance growth opportunities [6][5] Market Context - The political climate poses risks to Progyny's growth, particularly with potential changes in support for fertility services depending on election outcomes [18][17] - The increasing demand for assisted reproductive technologies, with ART use up 10% since 2010, suggests a favorable market environment for Progyny's services [6][18] Valuation - Despite the stock price drop, Progyny is still considered expensive by some metrics, although its price-to-sales ratio has declined to its lowest value this year [12][13] - Analysts expect Progyny to return to double-digit revenue growth in the coming years, with an estimated intrinsic value of over $46 per share based on conservative growth assumptions [13][15]