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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________
FORM 10-Q
____________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 001-39100
____________________________________________
Progyny, Inc.
(Exact name of registrant as specified in its charter)
____________________________________________
Delaware27-2220139
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1359 Broadway
New York, New York
10018
(Address of principal executive offices)(Zip Code)
(212) 888-3124
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.0001 par value per share
PGNYThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of July 31, 2022, the registrant had 92,080,926 shares of common stock, $0.0001 par value per share, outstanding.


Table of Contents
Page
2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding our future results of operations and financial position; our ability to acquire or invest in complementary businesses, products, and technologies; our ability to achieve profitability on an annual basis and sustain such profitability; the sufficiency of our cash and cash equivalents, anticipated sources and uses of cash; our business strategy and our ability to acquire new clients and successfully engage new and existing clients, our ability to effectively manage our growth and compete effectively with existing competitors and new market entrants, impact of recently adopted accounting pronouncements; our ability to attract and retain qualified employees and key personnel; the plans and objectives of management for future operations and capital expenditures; general economic and market trends; and ongoing impacts of the COVID-19 pandemic, including variants, on our business, operations, and the markets and communities in which we and our clients, members and providers operate are forward-looking statements and the potential impact of evolving laws and regulations, including any laws and regulations restricting reproductive rights. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seek,”, "assume", "future" or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under Part II, Item 1A. “Risk Factors” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
3

SUMMARY OF RISKS AFFECTING OUR BUSINESS
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the U.S. Securities and Exchange Commission, or the SEC, before making an investment decision regarding our common stock.
The ongoing COVID-19 pandemic, including variants, has had and is expected to continue to have, and similar health epidemics or pandemics could in the future have, an adverse impact on our business, operations, and the markets and communities in which we and our clients, members and providers operate.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.
The fertility market in which we participate is competitive, and if we do not continue to compete effectively, our results of operations could be harmed.
Our business depends on our ability to retain our existing clients and increase the adoption of our services within our client base. Any failure to do so would harm our business, financial condition and results of operations.
Our largest clients account for a significant portion of our revenue and a significant number of our clients are in the technology industry. The loss of one or more of these clients, changes to pricing terms with these clients or changes within the technology industry could negatively impact our business, financial condition and results of operations.
If we are unable to attract new clients, our business, financial condition and results of operations would be adversely affected.
A significant change in the level or the mix of the utilization of our solutions could have an adverse effect on our business, financial condition and results of operations.
We have a limited operating history with our current platform of solutions, which makes it difficult to predict our future results of operations.
We have a history of operating losses and may not sustain profitability in the future.
Changes or developments in the health insurance markets in the United States, including passage and implementation of a law to create a single-payer or government-run health insurance program, could materially and adversely harm our business and operating results.
The health benefits industry may be subject to negative publicity, which could adversely affect our business, financial condition and results of operations.
If our information technology systems, or those of our provider clinics, specialty pharmacies or other downstream vendors, lag, fail or suffer security breaches, we may incur a material disruption of our services or suffer a loss or inappropriate disclosure of confidential information, which could materially impact our business and the results of operations.
Our business depends on our ability to maintain our Center of Excellence network of high-quality fertility specialists and other healthcare providers. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.
Our growth depends in part on the success of our strategic relationships with, and monitoring of, third parties, including channel partners, vendors and insurance carriers.
If we fail to maintain an efficient pharmacy distribution network or if there is a disruption to our network of specialty pharmacies, our business, financial condition and results of operations could suffer.
4

We operate in a highly regulated industry and must comply with a significant number of complex and evolving legal and regulatory requirements.
The healthcare regulatory and political framework is uncertain and evolving. Recent and future developments in the healthcare industry could have an adverse impact on our business, financial condition and results of operations.
GENERAL
Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Progyny,” “the Company,” “we,” “our” and “us” refer to Progyny, Inc.
“Progyny®” and our other registered and common law trade names, trademarks and service marks are the property of Progyny, Inc. Other trade names, trademarks and service marks used in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.
We announce material information to the public through filings with the SEC, our investor relations website at investors.progyny.com, press releases, public conference calls, and webcasts to achieve broad, non-exclusionary distribution of information. We therefore encourage investors and others interested in Progyny to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
5

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROGYNY, INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
June 30,
2022
December 31,
2021
ASSETS  
Current assets:
Cash and cash equivalents$54,730 $91,413 
Marketable securities67,655 28,005 
Accounts receivable, net of $23,476 and $17,379 of allowances at June 30, 2022 and December 31, 2021, respectively
229,864 134,557 
Prepaid expenses and other current assets4,129 4,564 
Total current assets356,378 258,539 
Property and equipment, net6,276 5,027 
Operating lease right-of-use assets7,359 7,805 
Goodwill11,880 11,880 
Intangible assets, net348 599 
Deferred tax assets76,344 71,274 
Other noncurrent assets4,291 2,941 
Total assets$462,876 $358,065 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:  
Accounts payable$92,655 $61,399 
Accrued expenses and other current liabilities52,242 37,425 
Total current liabilities 144,897 98,824 
Operating lease noncurrent liabilities6,955 7,419 
Total liabilities151,852 106,243 
Commitments and Contingencies (Note 7)
STOCKHOLDERS' EQUITY  
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at June 30, 2022 and December 31, 2021; 92,056,816 and 91,088,781 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
9 9 
Additional paid-in capital300,691 255,339 
Treasury stock, at cost, $0.0001 par value; 615,980 shares at June 30, 2022 and December 31, 2021
(1,009)(1,009)
Accumulated earnings (deficit)11,315 (2,424)
Accumulated other comprehensive income (loss)18 (93)
Total stockholders’ equity 311,024 251,822 
Total liabilities and stockholders’ equity $462,876 $358,065 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

PROGYNY, INC.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Revenue$195,004 $128,651 $367,221 $250,784 
Cost of services151,117 99,030 290,385 192,256 
Gross profit43,887 29,621 76,836 58,528 
Operating expenses:  
Sales and marketing11,496 4,028 21,511 8,042 
General and administrative23,553 13,937 46,545 27,023 
Total operating expenses35,049 17,965 68,056 35,065 
Income from operations8,838 11,656 8,780 23,463 
Other income (expense):  
Other income (expense), net25 12 (71)19 
Interest income, net40 252 52 234 
Total other income (expense), net65 264 (19)253 
Income before income taxes8,903 11,920 8,761 23,716 
(Provision) benefit for income taxes (135)6,807 4,978 10,177 
Net income$8,768 $18,727 $13,739 $33,893 
Net income per share:  
Basic$0.10 $0.21 $0.15 $0.39 
Diluted$0.09 $0.19 $0.14 $0.34 
Weighted-average shares used in computing net income per share:  
Basic91,964,978 88,165,158 91,578,707 87,783,894 
Diluted99,672,769 99,808,085 99,725,564 99,977,518 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

PROGYNY, INC.
Consolidated Statement of Comprehensive Income (Loss)
(Unaudited)
(in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Net income$8,768$18,727$13,739$33,893
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities29(220)111(271)
Total other comprehensive income (loss)29(220)111(271)
Total comprehensive income$8,797$18,507$13,850$33,622
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8

PROGYNY, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
Common StockTreasury
Stock
Additional
Paid in
Capital
Accumulated
Earnings
(Deficit)
Other
Comprehensive
Income (Loss)
Total
SharesAmount
For the three months ended June 30, 2022:
Balance at March 31, 202291,741,481 $9 $(1,009)$278,083 $2,547 $(11)$279,619 
Issuance of employee equity awards, net of shares withheld315,335 — — (1,214)— — (1,214)
Stock-based compensation— — — 23,822 — — 23,822 
Other comprehensive income (loss)— —  — — 29 29 
Net income— — — — 8,768 — 8,768 
Balance at June 30, 202292,056,816 $9 $(1,009)$300,691 $11,315 $18 $311,024 
For the three months ended June 30, 2021:
Balance at March 31, 202187,732,302 $9 $(1,009)$238,695 $(53,027)$(50)$184,618 
Issuance of employee equity awards, net of shares withheld802,791 — — (5,113)— — (5,113)
Stock-based compensation— — — 6,529 — — 6,529 
Warrants exercise824,991 —  (0)— — (0)
Other comprehensive income (loss)— —  — — (220)(220)
Net income— — — — 18,727 — 18,727 
Balance at June 30, 202189,360,084 $9 $(1,009)$240,111 $(34,300)$(270)$204,541 
For the six months ended June 30, 2022:
Balance at December 31, 202191,088,781 $9 $(1,009)$255,339 $(2,424)$(93)$251,822 
Issuance of employee equity awards, net of shares withheld968,035 — — (3,173)— — (3,173)
Stock-based compensation — — 48,525 — — 48,525 
Other comprehensive income (loss)—  — — — 111 111 
Net income — — — 13,739 — 13,739 
Balance at June 30, 202292,056,816 $9 $(1,009)$300,691 $11,315 $18 $311,024 
For the six months ended June 30, 2021:
Balance at December 31, 202087,054,329 $9 $(1,009)$236,139 $(68,193)$1 $166,947 
Issuance of employee equity awards, net of shares withheld1,480,764 — — (7,591)— — (7,591)
Stock-based compensation — — 11,563 — — 11,563 
Warrant exercise824,991  — (0)— — — 
Other comprehensive income (loss)—  — — — (271)(271)
Net income — — — 33,893 — 33,893 
Balance at June 30, 202189,360,084 $9 $(1,009)$240,111 $(34,300)$(270)$204,541 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9

PROGYNY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended
June 30,
20222021
OPERATING ACTIVITIES 
Net income$13,739 $33,893 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred tax benefit(5,070)(10,177)
Non-cash interest expense 38 
Depreciation and amortization750 718 
Stock-based compensation expense48,154 11,551 
Bad debt expense6,097 4,805 
Changes in operating assets and liabilities: 
Accounts receivable(101,405)(69,908)
Prepaid expenses and other current assets421 1,491 
Accounts payable31,075 11,091 
Accrued expenses and other current liabilities15,591 9,537 
Other noncurrent assets and liabilities(1,368)20 
Net cash provided by (used in) operating activities7,984 (6,941)
INVESTING ACTIVITIES
Purchase of property and equipment, net(1,280)(799)
Purchase of marketable securities(94,611)(83,481)
Sale of marketable securities55,074 76,984 
Net cash used in investing activities(40,817)(7,296)
FINANCING ACTIVITIES
Proceeds from exercise of stock options1,209 1,191 
Payment of employee taxes related to equity awards(5,635)(9,291)
Proceeds from contributions to employee stock purchase plan576 779 
Net cash used in financing activities(3,850)(7,321)
Net decrease in cash and cash equivalents(36,683)(21,558)
Cash and cash equivalents, beginning of period91,413 70,305 
Cash and cash equivalents, end of period$54,730 $48,747 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes, net of refunds received$60 $ 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Additions of property and equipment, net included in accounts payable and accrued expenses$303 $98 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
10

PROGYNY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Business and Basis of Presentation
Description of Business
Progyny, Inc. (together with its subsidiaries referred to as “Progyny” or the “Company”) was incorporated in the state of Delaware on April 3, 2008, and maintains its corporate headquarters in New York, NY.
Progyny is a provider of a fertility benefits solution and pharmacy benefits solution and operates and manages in one operating segment. The fertility benefits solution consists of a significant service that integrates: (1) the treatment services (“Smart Cycles”) that the Company has designed, (2) access to the Progyny network of high-quality fertility specialists that perform the Smart Cycle treatments and (3) active management of the selective network of high-quality provider clinics, real-time member eligibility and treatment authorization, member-facing digital tools and detailed quarterly reporting supported by the Company’s dedicated account management teams, and end to end comprehensive concierge member support provided by Progyny’s in-house staff of Patient Care Advocates (“PCAs”) (collectively, the “care management services”).
The Company enhanced its fertility benefits solution with the launch of Progyny Rx, its pharmacy benefits solution, effective January 1, 2018. As part of this solution, the Company provides formulary plan design, simplified authorization, assistance with prescription fulfillment, and timely delivery of the medications by the Company’s network of specialty pharmacies, as well as medication administration training, pharmacy support services, and continuing PCA support. As a pharmacy benefits solution provider, Progyny manages the dispensing of pharmaceuticals through the Company’s specialty pharmacy contracts. The pharmacy benefits solution is only available as an add-on service to its fertility benefits solution.
Basis of Presentation
The accompanying interim unaudited consolidated financial statements include the accounts of Progyny, Inc. and its wholly owned subsidiaries. The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial reporting. These interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary to fairly state our financial position as of June 30, 2022, the results of our operations for the three and six months ended June 30, 2022 and 2021 and the results of our cash flows for the six months ended June 30, 2022 and 2021. Therefore, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022 (the “Annual Report on Form 10-K”).
The results for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results expected for the year ending December 31, 2022 or any other future period. Additionally, there are many uncertainties regarding the ongoing coronavirus (“COVID-19”) pandemic, including variants, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact its customers and members, its provider network, specialty pharmacy partners, employees, suppliers, vendors, and other business partners. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, future results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and variants, the actions taken to contain it or treat its impact, vaccine roll-out efforts and impact, including vaccine hesitancy, break-through cases and the economic impact on local, regional and national markets. The overall disruption of the healthcare and fertility markets and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.
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Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP generally requires management to make estimates and assumptions that affect the reported amount of certain assets, liabilities, revenue, and expenses, and the related disclosure of contingent assets and liabilities. Such estimates include, but are not limited to, the determination of accrued receivables related to revenue recognition, accrued claims payable, allowance for doubtful accounts, stock-based compensation expense, lease liabilities, and accounting for income taxes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
2.Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in Note 2 of the Company’s Annual Report on Form 10-K.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to clients in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company applies the following five-step model to recognize revenue from contracts with clients:
Identification of the contract, or contracts, with a client;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, a performance obligation is satisfied.
Progyny’s contracts typically have a stated term of three years and include contractual termination options after the first year, allowing the client to terminate the contract with 30 to 90 days’ notice.
Fertility Benefits Solution Revenue
Progyny primarily generates revenue through its fertility benefits solution, in which Progyny provides self-insured enterprise entities (“clients”) and their employees and partners (together, “members”) with fertility benefits. As part of the fertility benefits solution, Progyny provides access to effective and cost-efficient fertility treatments, referred to as Smart Cycles, as well as other related services. Smart Cycles are proprietary treatment bundles that include certain medical services available to members through Progyny’s proprietary, credentialed network of provider clinics. In addition to access to Progyny’s Smart Cycle treatment bundles and access to Progyny’s network of provider clinics, the fertility benefits solution includes other comprehensive services, which Progyny refers to as care management services, such as active management of the provider clinic network, real-time member eligibility and treatment authorization, member-facing digital tools throughout the Smart Cycle and detailed quarterly reporting all supported by client facing account management and end-to-end comprehensive member support provided by Progyny’s in house staff of PCAs.
The promises within Progyny’s fertility benefits contract with a client represent a single performance obligation because Progyny provides a significant service of integrating the Progyny designed Smart Cycles and access to the fertility treatment services provided by provider clinics with the other comprehensive services into the combined fertility benefits solution that the client contracted to receive. Progyny’s fertility benefits solution is a stand-ready obligation that is satisfied over the contract term.
Progyny’s contracts include the following sources of consideration, which are all variable: a per employee per month (“PEPM”) administration fee (in most, but not all contracts) and a fixed rate per Smart Cycle. The PEPM
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administration fee is allocated between the fertility benefits solution and the pharmacy benefits solution based on standalone selling price, estimated using an expected cost-plus margin method. The Company allocates the variable consideration related to the fixed rate per Smart Cycle to the distinct period during which the related services were performed as those fees relate specifically to the Company’s efforts to provide its fertility benefits solution to its clients in the period and represents the consideration the Company is entitled to for the fertility benefits services provided. As a result, the fixed rate per Smart Cycle is included in the transaction price and recognized in the period in which the Smart Cycle is provided to the member.
Progyny’s contracts also include potential service level agreement refunds related to outcome-based service metrics. These service level refunds, which are determined based on results of a full plan year, if met, are based on a percentage of the PEPM fee paid by clients. The Company estimates the variable consideration related to the total PEPM administration fee, less estimated refunds related to service level agreements, and recognizes the amounts allocated to the fertility benefits solution ratably over the contract term. Progyny’s estimates of service level agreement refunds, have not historically resulted in significant adjustments to the transaction price.
Clients are typically invoiced on a monthly basis for the PEPM administration fee. Progyny invoices its clients and members for their respective portions of the fixed rate per Smart Cycle bundle when all treatment services within a Smart Cycle are completed by the provider clinic. Once an invoice is issued, payment terms are typically between 30 to 60 days.
The Company assesses whether it is the principal or the agent for each arrangement with a client, since fertility treatment services are provided by a third party—the provider clinics. The Company is the principal in its arrangements with clients and therefore presents revenue gross of the amounts paid to the provider clinics because Progyny controls the specified service (the fertility benefits solution) before it is transferred to the client. Progyny integrates the fertility treatment services provided by the provider clinics into the overall fertility benefits solution that the client contracted to receive. In addition, Progyny defines the scope of the potential services to be performed by the provider clinics and monitors the performance of the provider clinics. Furthermore, Progyny is primarily responsible for fulfilling the promise to the client and has discretion in setting the pricing, as Progyny separately negotiates agreements with the provider clinics, which establish pricing for each treatment service. Pricing of services from provider clinics is independent from the fees charged to clients.
Pharmacy Benefits Solution Revenue
For clients that have the fertility benefits solution, Progyny offers, as an add-on, its pharmacy benefits solution, which is a separate, fully integrated pharmacy benefit. As part of the pharmacy benefits solution, Progyny provides care management services, which include Progyny’s formulary plan design, prescription fulfillment, simplified authorization and timely delivery of the medications used during treatment through Progyny’s network of specialty pharmacies, and clinical services consisting of member assessments, UnPack It calls, telephone support, online education, medication administration training, pharmacy support services and continuing PCA support.
The pharmacy-related promises represent a single performance obligation because Progyny provides a significant service of integrating the formulary plan design, prescription fulfillment, clinical services and PCA support into the combined pharmacy benefits solution that the client contracted to receive. The pharmacy benefits solution is a stand-ready obligation that is satisfied over the contract term.
Progyny’s contracts include the following sources of consideration, all of which are variable: a PEPM administration fee (in most, but not all contracts) and a fixed fee per fertility drug. As described above, the PEPM administration fee, less estimated refunds related to service level agreements, is allocated to the pharmacy benefits solution and recognized ratably over the contract term. The Company allocates the variable consideration related to the fixed fee per fertility drug to the distinct period during which the related services were performed, as those fees relate specifically to the Company’s efforts to provide its pharmacy benefits solution to clients in the period and represents the consideration the Company is entitled to for the pharmacy benefits services provided. As a result, the fixed fee per fertility drug is included in the transaction price and recognized in the period in which the Company is entitled to consideration from a client, which is when a prescription is filled and delivered to the members.
As stated above, clients are invoiced on a monthly basis for the PEPM administration fee. Progyny invoices the client and the member for their respective portions of the fixed fee per fertility drug, when the prescription services are completed by the specialty pharmacies. Once an invoice is issued, payment terms are typically between 30 to 60 days.
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The Company assesses whether it is the principal or the agent for each arrangement with a client, as prescription fulfillment and clinical services are provided by a third party—the specialty pharmacies. The Company is the principal in its arrangements with clients, and therefore presents revenue gross of the amounts paid to the specialty pharmacies. Progyny controls the specified service (the pharmacy benefits solution) before it is transferred to the client. Progyny integrates the prescription fulfillment and clinical services provided by the pharmacies and PCAs into the overall pharmacy benefits solution that the client contracted to receive. In addition, Progyny defines the scope of the potential services to be performed by the specialty pharmacies and monitors the performance of the specialty pharmacies. Furthermore, Progyny is primarily responsible for fulfilling the promise to the client and has discretion in setting the pricing, as Progyny separately negotiates agreements with pharmacies, which establish pricing for each drug. Pricing of fertility drugs is independent from the fees charged to clients.
The Company does not disclose the transaction price allocated to remaining performance obligations because all of the transaction price is variable and is allocated to the distinct periods to which the services relate, as discussed above. The remaining contract term is typically less than one year, due to the client’s contractual termination options.
There were no material contract asset or contract liability balances as of June 30, 2022 and December 31, 2021.
Accrued Receivables and Accrued Claims Payable
Accrued receivables are estimated based on historical experience for those fertility benefits services provided but for which a claim has not been received from the provider clinic at the end of the reporting period, which includes assumptions regarding the lag between authorization date and service date as well as estimates for changes and cancellations of services. At the same time, cost of services and accrued claims payables are estimated based on the amount to be paid to the provider clinic and expected gross margin on fertility benefits services. Estimates are adjusted to actual at the time of billing. Adjustments to original estimates have not been material.
As of June 30, 2022 and December 31, 2021, accrued receivables were $61.2 million and $30.2 million, respectively. Accrued receivables are included within accounts receivable in the consolidated balance sheet.
Accrued claims payable of $38.5 million and $20.0 million as of June 30, 2022 and December 31, 2021, respectively, are included within accrued expenses and other current liabilities in the consolidated balance sheet. Claims payable are generally paid within 30 days based on contractual terms.
As of June 30, 2022 and December 31, 2021, unbilled receivables, which represent claims received and approved but unbilled at the end of the reporting period, were $36.2 million and $23.7 million, respectively. Unbilled receivables are typically billed to clients within 30 days of the approved claim based on the contractual billing schedule agreed upon with the client. Unbilled receivables are included in accounts receivable in the consolidated balance sheet.
Accounts Receivable and Allowance for Doubtful Accounts
The accounts receivable balance primarily includes amounts due from clients and members. The Company estimates the allowance for doubtful accounts based on the lifetime expected credit losses for the client and member receivable pools, respectively. Under this current expected credit losses model, the Company determines the allowance for doubtful accounts based on factors such as the age of the receivable balance, historical experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions. An allowance for credit losses is applied at the time the asset is recognized. Expected credit losses are recorded as general and administrative expenses on the consolidated statements of operations. The following table provides a summary of the activity in this allowance (in thousands):
Six Months Ended June 30, 2022
Balance at
Beginning
of Period
Charged
to Costs
and Expenses
Write-offs
Balance
at End
of Period
Allowance for doubtful accounts$17,379$6,097$$23,476
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Cost of Services
Fertility Benefits Services
Fertility benefits services costs include: (1) fees paid to provider clinics within the Company’s network, labs and anesthesiologists; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with care management service functions: Provider Account Management, PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Contracts with provider clinics are typically for a term of one to two years.
Pharmacy Benefits Services
Pharmacy benefits services costs include: (1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by specialty pharmacy partners; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with care management service functions: PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Contracts with the specialty pharmacies are typically for a term of one year.
In the specialty pharmacy contracts, the contractual fees of prescription drugs sold includes the cost of the prescription drugs purchased and shipped to members by the Company’s specialty mail service dispensing pharmacies, net of any volume-related or other discounts.
Vendor rebates
The Company receives a rebate on formulations purchased and dispensed by the Company’s specialty pharmacies. The Company’s contractual arrangements with pharmacy program partners provide for the Company to receive a discount (or rebate) from established list prices paid subsequent to dispensing when products are purchased indirectly from a pharmacy program partners (such as through a specialty pharmacy). These rebates are recognized as a reduction of cost of services when prescriptions are dispensed and are generally estimated and billed to manufacturers within 20 days after the end of each month. The effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the Company’s results of operations.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, as well as improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04 (“ASU 2021-04”) “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation- Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40)” which provides guidance on modifications or exchanges of a freestanding equity-classified written call options that are not within the scope of another Topic, such as warrants. The Company adopted this standard as of January 1, 2022 on a prospective basis to modifications or exchanges occurring on or after this date. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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3.Revenue
Disaggregated revenue
The following table disaggregates revenue by service (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222022
Fertility benefits services revenue$126,790 $92,266 $237,708 $181,120 
Pharmacy benefits services revenue68,214 36,385 129,513 69,664 
Total revenue$195,004 $128,651 $367,221 $250,784 
4.Fair Value of Financial Instruments
The fair value of financial instruments is determined based on assumptions that market participants would use when pricing an asset or liability at the balance sheet date. Certain assets are categorized based on the following fair value hierarchy of market participant assumptions:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value of the asset or liability and supported by little or no market activity.
The Company uses observable market data when available, and minimizes the use of unobservable inputs when determining fair value.
As of June 30, 2022 and December 31, 2021, the Company had $57.0 million and $93.7 million, respectively, in financial assets held in money market accounts and $67.7 million and $28.0 million, respectively, held in marketable securities, including U.S. treasury bills. All were classified as Level 1 in the fair value hierarchy. The Company measured these assets at fair value. The Company classified these assets as Level 1 because the values of these assets are determined using unadjusted quoted prices in active markets for identical assets.
As of June 30, 2022 and December 31, 2021, the Company did not have any assets or liabilities classified as Level 2 or Level 3 in the fair value hierarchy.
5.Leases
In September 2019, the Company’s lease agreement for its corporate headquarters commenced and is scheduled to expire in May 2029. Pursuant to the lease, the Company is obligated to pay the base rent of approximately $1.3 million per annum through the end of the fifth lease year and approximately $1.4 million per annum thereafter through the expiration date.
The Company recognizes lease expense on a straight-line basis over the lease term. Lease expense for each of the three months ended June 30, 2022 and 2021 was $0.3 million. For each of the six months ended June 30, 2022 and 2021, lease expense was $0.6 million.
Cash outflows from operating activities attributable to the operating lease for each of the six months ended June 30, 2022 and 2021 was $0.6 million.
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Information related to our leases is as follows (in thousands):
Balance Sheet LocationJune 30, 2022December 31, 2021
Operating Leases
Right-of-use assetOperating lease right-of-use assets$7,359$7,805
Short-term lease liabilitiesAccrued expenses and other current liabilities$1,231$1,231
Long-term lease liabilitiesOperating lease noncurrent liabilities$6,955$7,419
Other information
Weighted average remaining lease term, operating lease6.9 years7.4 years
Weighted average discount rate, operating lease4.29%4.29%
Future minimum facility lease payments related to the Company's operating lease liabilities as of June 30, 2022 were as follows (in thousands):
Year Ending December 31:Operating Lease Payments as of June 30, 2022
2022$643
20231,286
20241,326
20251,407
20261,407
Thereafter3,400
Total undiscounted lease payments$9,469
Less: imputed interest1,283
Present value of lease liabilities$8,186
Less: current portion of operating lease liabilities 1,231
Operating lease noncurrent liabilities$6,955
February 2022 Lease Agreement
In February 2022, the Company entered into a lease agreement for additional space in its corporate offices in New York, New York, consisting of a 24,099 square foot office and a 21,262 square foot office, and also for continued occupancy of the 25,212 square foot office after the expiration of the current sublease. For the 24,099 square foot office, the lease commencement date, which is when the premises will become available to the Company for use, is currently expected to be in the first quarter of 2023. The Company is obligated to pay the base rent of approximately $1.4 million per year starting in the first quarter of 2024 for five years and approximately $1.5 million per year thereafter through the first quarter of 2035, the expiration date. For the 21,262 square foot office, the lease commencement date, which is when the premises will become available to the Company for use, is currently expected to be in the fourth quarter of 2024. The Company is obligated to pay the base rent of approximately $1.3 million starting in the first quarter of 2025 for five years and approximately $1.4 million per year thereafter through the first quarter of 2035, the expiration date. For the current 25,212 square foot office, the Company is obligated to pay the base rent of approximately $1.6 million per year beginning in June 2029, which is the lease commencement, through the first quarter of 2035, the expiration date.
6.Debt
In June 2018, the Company entered into a loan agreement with Silicon Valley Bank for a revolving line of credit up to $15.0 million based upon an advance rate of 80% on “eligible” accounts receivable to fund its working capital and other general corporate needs, which was amended in April 2019, January 2020, June 2020, and February 2021 (as amended, the “SVB Line of Credit”). Eligible accounts receivable was defined in the loan agreement as accounts billed with aging 90 days or less and excluded accounts receivable due for member co-payments, co-insurance, and deductibles. The SVB Line of Credit matured in June 2021.
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The Company was required to pay a revolving line commitment fee of $225,000 in three equal annual installments of $75,000 starting on the one-year anniversary of the revolving line. The Company made the first installment payment of $75,000 in June 2019 and accrued this cost monthly. When the Company held unrestricted cash balances greater than $5.0 million, interest accrued at a floating rate per annum equal to the greater of prime rate or 4.75%. If the unrestricted cash balance was less than $5.0 million, interest accrued at a floating rate per annum equal to the greater of prime rate plus 0.5% or 4.75%, with interest payable monthly. Interest was paid based upon the borrowed funds.
The SVB Line of Credit contained customary affirmative covenants, financial covenants, as well as negative covenants that, among other things, restricted the Company’s ability to incur additional indebtedness (including guarantees of certain obligations); create liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; maintain collateral; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and advances; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions. The financial covenant required the Company to achieve a specified minimum quarterly revenue as defined by the SVB Line of Credit.
During the six months ended June 30, 2021, the Company recorded interest expense on the SVB Line of Credit of $18,750.
7.Commitments and Contingencies
The Company records accruals for loss contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible, the Company discloses the matter, and the amount or range of the possible loss, if estimable, in the notes to the consolidated financial statements.
From time to time, the Company is involved in certain claims and litigation arising in the normal course of business. The Company is not aware of any legal proceedings or claims, that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or results of operations.
8.Stock-based Compensation Expense
The following table summarizes stock-based compensation expense, which was included in the statements of operations as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Cost of services$6,170 $1,461 $12,335 $2,748 
Sales and marketing5,079 798 9,842 1,479 
General and administrative12,405 4,258 25,977 7,324 
Total stock-based compensation expense$23,654 $6,517 $48,154 $11,551 

January 2022 Executive Equity Grants

On November 4, 2021, the Company announced that David Schlanger would transition to the role of Executive Chairman, effective as of January 1, 2022, and would continue to serve as a director. In connection with this transition, the Company entered into an amended and restated employment agreement with Mr. Schlanger, effective as of January 1, 2022. Pursuant to this agreement, Mr. Schlanger received an equity award for fiscal year 2022 comprised of 333,000 non-qualified stock options and 84,000 restricted stock units, in each case vesting as to 25% on the first anniversary of the vesting commencement date with the remaining 75% of such award vesting in equal quarterly installments thereafter over the next three years, as well as a performance stock unit award with respect to a maximum number of 83,000 shares that are eligible to be earned based on the achievement of specified revenue targets.

Peter Anevski, who served as President and Chief Operating Officer, succeeded Mr. Schlanger as Chief Executive Officer, effective as of January 1, 2022. In connection with this transition, the Company entered into an amended and restated employment agreement with Mr. Anevski, effective as of January 1, 2022. Pursuant to this agreement, Mr. Anevski received an equity award for fiscal year 2022 comprised of 1,000,000 non-qualified stock options and 250,000
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restricted stock units, in each case vesting as to 25% on the first anniversary of the vesting commencement date with the remaining 75% of such award vesting in equal quarterly installments thereafter over the next three years, as well as a performance stock unit award with respect to a maximum number of 250,000 shares that are eligible to be earned based on the achievement of specified revenue targets.
9.Income Taxes
For the six months ended June 30, 2022 and 2021, the Company calculated its year-to-date provision for income taxes by applying the estimated annual effective tax rate to the year-to-date profit from operations before income taxes and adjusts the provision for income taxes for discrete tax items recorded in the period. The Company updates its estimate of its annual effective tax rate at the end of each quarterly period. The estimate takes into account annual forecasted income before income taxes and any significant permanent tax items. During the six months ended June 30, 2022 and 2021, the Company recorded a benefit for taxes of $5.0 million and $10.2 million, respectively, primarily due to equity compensation activity that occurred during the period.
10.Net Income Per Share
Basic net income per share is calculated by dividing the net income by the weighted-average number of shares of common stock outstanding for the period.
Diluted net income per share is computed by dividing the diluted net income by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming dilutive effect of outstanding common stock options, restricted stock units, and common stock warrants. In periods when the Company has incurred a net loss, diluted net loss per share is the same as basic net loss per share because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. A reconciliation of net income and the number of shares in the calculation of basic and diluted net income per share is as follows (in thousands, except share and per share amounts):
Three Months Ended
June 30
Six Months Ended
June 30,
2022202120222021
Basic net income per common share:
Numerator:
Net income $8,768$18,727$13,739$33,893
Denominator:
Weighted-average shares used in computing basic net income per share91,964,97888,165,15891,578,70787,783,894
Basic net income per share $0.10$0.21$0.15$0.39
Diluted net income per common share:
Numerator:
Net income$8,768$18,727$13,739$33,893
Denominator:
Weighted-average shares used in computing basic net income per share91,964,97888,165,15891,578,70787,783,894
Effect of dilutive securities 7,707,79111,642,9278,146,85712,193,624
Weighted-average shares used in computing diluted net income per share99,672,76999,808,08599,725,56499,977,518
Diluted net income per share $0.09$0.19$0.14$0.34
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The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted income per share for the period presented because including them would have been antidilutive:
Three Months Ended
June 30,
Six Months Ended June 30,
2022202120222021
Options to purchase common stock7,427,3601,016,8437,160,965705,906
Shares issuable under ESPP2,1223,080
Restricted stock units2,137,7417,0682,030,1923,554
Total 9,567,2231,023,9119,194,237709,460
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission, or the SEC, on March 1, 2022. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A. in this Quarterly Report on Form 10-Q.
Overview
We envision a world where anyone who wants to have a child can do so. Our mission is to make dreams of parenthood come true through healthy, timely and supported fertility journeys. Through our differentiated approach to benefits plan design, patient education and support and active network management, our clients’ employees are able to pursue the most effective treatment from the best physicians and achieve optimal outcomes.
Progyny is a leading benefits management company specializing in fertility and family building benefits solutions in the United States. Our clients include many of the nation’s most prominent employers across a broad array of industries. We launched our fertility benefits solution in 2016 with our first five employer clients, and we have grown our current base of clients to over 270 with at least 1,000 covered lives. We currently provide coverage to approximately 4.3 million employees and their partners (known in our industry as covered lives), whom we refer to as our members. We have achieved this growth by demonstrating that our purpose-built, data-driven and disruptive platform consistently delivers superior clinical outcomes in a cost-efficient manner while driving exceptional client and member satisfaction. We have retained substantially all of our clients since inception, and our member satisfaction over that same period is evidenced by our industry-leading Net Promoter Score, or NPS, of +81 for our fertility benefits solution and +79 for our integrated pharmacy benefits solution, Progyny Rx as of December 31, 2021. Our members experience healthier pregnancies and superior rates of pregnancy and live births, as well as reduced rates of miscarriages and multiple births, saving valuable time and money and limiting personal and professional disruption.
Outcome
National Averages
for All Provider
Clinics
Progyny In‑Network
Provider Clinic
Averages
for All Patients
Progyny In‑Network
Provider Clinic
Averages
for Progyny
Members Only(3)
Single embryo transfer rate(1)
72.5%75.6%91.0%
Pregnancy rate per IVF transfer(1)
54.1%55.5%63.0%
Miscarriage rate(1)
18.6%18.3%13.9%
Live birth rate(2)
42.7%44.1%54.3%
IVF multiples rate(2)
7.4%6.5%2.5%
________________________________
(1)Calculated based on the Society for Assisted Reproductive Technology, or SART, 2019 National Summary Report, finalized in 2022.
(2)Calculated based on CDC, 2020 National Summary and Clinic Data Sets, published in 2022.
(3)Calculated based on the 12-month period ended December 31, 2021.
Fertility Benefits Solution. Our fertility benefits solution includes providing members with access to effective and cost-efficient fertility treatments through our Smart Cycle plan design. Smart Cycles are proprietary treatment bundles designed by us to include those medical services available to our members through our selective network of high-quality fertility specialists. Medical services under our Smart Cycles include everything needed for a comprehensive fertility treatment cycle, including all necessary diagnostic testing and access to the latest technology (such as, in the case of in vitro fertilization, or IVF, preimplantation genetic testing). We currently offer 19 different Smart Cycle treatment bundles, which may be used in various combinations depending on the member’s need. Each Smart Cycle treatment bundle has a
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separate unit value (i.e., some have fractional values and some have whole values). Our clients contract to purchase a cumulative Smart Cycle unit value per eligible member. These can range from one to an unlimited unit value. Members, in consultation with their Patient Care Advocates, or PCAs, can choose their preferred provider clinics within our network and utilize the specific Smart Cycle treatment bundles necessary for the treatment pathway they determine throughout their fertility journey.
In addition, we provide care management services as part of our fertility benefits solution, which include active management of our selective network of high-quality fertility specialists, real-time member eligibility and treatment authorization, member-facing digital solutions, detailed quarterly reporting for our clients supported by our dedicated account management teams and end-to-end comprehensive concierge member support provided by our in-house staff of PCAs. Clients can also add adoption and surrogacy reimbursement programs as part of this solution.
Pharmacy Benefits Solution. We went live with our integrated pharmacy benefits solution in 2018. Progyny Rx can only be purchased by clients that purchase our fertility benefits solution. Progyny Rx provides our members with access to the medications needed during their fertility treatment. As part of this solution, we provide care management services, which include our formulary plan design, simplified authorization, assistance with prescription fulfillment and timely delivery of the medications by our network of specialty pharmacies, as well as medication administration training, pharmacy support services and continuing PCA support.
Our Clients. We currently serve over 270 employers with at least 1,000 covered lives in the United States across more than 30 industries. Our current clients, who are industry leaders across both high-growth and mature industries and who range in size from approximately 1,000 to 500,000 employees, represent approximately 4.3 million covered lives.
Revenue Model
Our clients primarily contract with us to provide our fertility benefits solution and, where added on by our clients, our Progyny Rx solution. Our revenue has both a utilization-based component and a population-based component, as follows:
Utilization Component. Clients pay us for the fertility benefits and Progyny Rx solutions utilized by their employees. With respect to the fertility benefits solution, we bill clients for Smart Cycles in accordance with our bundled case rates, which vary by the type of fertility service rendered and clinic location. Case rates include all third-party fertility specialists, anesthesiology and laboratory services, as well as all of our care management services. With respect to Progyny Rx, we bill the client for the fertility medication dispensed to their employees in connection with the authorized fertility treatments. Medication fees also include our formulary management, drug utilization review and cost containment services and other care management services.
Population-Based Component. Clients who purchase our fertility benefits solution also typically pay us a per employee per month fee, or PEPM fee, which is population-based. This allows us to provide access to our PCAs for fertility and family building education and guidance and other digital tools to all of our members, regardless of whether they ultimately pursue fertility treatment. PEPM fees represented 1% of our total revenue for the six months ended June 30, 2022 and 2021.
Our revenue in a given year is determined by the level and mix of the utilization of our fertility benefits and Progyny Rx solutions by our members as well as the number of members enrolled in our clients’ benefits plans. Each year, we contract with new clients for our fertility benefits solution and, where added by the client, our Progyny Rx solution. Given that the majority of our clients contract with us for a January 1st benefits plan start date, our sales cycle follows the conventional healthcare benefits cycle, which largely concludes by the end of October of the prior year to allow for benefits education and annual open enrollment to occur in November. For some clients that are considering a start date later in the year, the sales cycle can extend through the next year.
Similarly, for existing clients, any changes in plan designs are typically elected by the end of October so that clients can inform their employees of the benefits during the open enrollment period ahead of a January 1st plan year start.
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Key Operational and Business Metrics
In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
Member and Client Base. Our addressable market is primarily large self-insured employers. There are approximately 8,000 employers in the United States (excluding quasi-governmental entities, such as universities, school systems, and labor unions) who have a minimum of 1,000 employees, representing approximately 75 million potential covered lives in total. Our current member base of approximately 4.3 million covered lives represents a low single digit percent of our total market opportunity. We intend to continue to drive new client acquisition by investing significantly in sales and marketing to engage, educate and drive awareness of the unmet need around fertility solutions among benefits executives. We also increase brand awareness and adoption with employers by leveraging our strong relationships with benefits consultants. In particular, we are focused on expanding the number of clients with more than 2,500 covered lives. As of June 30, 2022 and December 31, 2021, we served 273 and 191 clients, respectively, representing 4,322,000 and 2,935,000 members, respectively.
Importantly, as we have continued to grow, we have meaningfully diversified our client base across more than 30 different industries currently from just two industries when we launched our fertility benefits solution in 2016. We are expanding our client base within each industry and have an industry-specific strategy that enables us to most effectively target our addressable market. Because our clients within an industry compete with each other for employees, we believe our solutions are increasingly viewed as an important way for them to differentiate from, or remain competitive with, one another. Additionally, we believe that our expanding presence has resulted in a heightened awareness of the need to offer fertility benefits and has informed the market of the value we provide to our clients and our members, which we believe also helps facilitate growth. In addition, we are continuously utilizing our established client relationships to evaluate other potential fertility solutions that could benefit our members and simultaneously drive growth. Our ability to attract new clients will depend on a number of factors, including the effectiveness and pricing of our solutions, offerings of our competitors, the effectiveness of our marketing efforts to drive awareness and the demand for fertility benefits solutions overall. We define a client as an organization for which we have an active contract in the period indicated. We count each organization we contract with as a single client including divisions, segments or subsidiaries of larger organizations to the extent we contract separately with them.
Benefits Utilization. A key driver of our revenue is the number of members we serve and the rate at which they utilize their fertility benefits. As our client base has grown, our membership has grown from approximately 110,000 members in 2016 when we launched our fertility benefits solution to approximately 4.3 million members as of June 30, 2022.
The following table highlights the number of assisted reproductive treatment, or ART, cycles performed for Progyny members and the member utilization rates for each of the periods presented:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Assisted Reproductive Treatment (ART) Cycles(1)
10,3927,34019,31613,898
Utilization - All Members(2)
0.49%0.54%0.77%0.83%
Utilization - Female Only(2)
0.44%0.47%0.66%0.70%
Average Members4,268,0002,795,0004,135,0002,735,000
________________________________
(1)Represents the number of ART cycles performed, including IVF with a fresh embryo transfer, IVF freeze all cycles/embryo banking, frozen embryo transfers and egg freezing.
(2)Represents the member utilization rate for all services, including but not limited to, ART cycles, initial consultations, IUIs and genetic testing. The utilization rate for all members includes all unique members (female and male) who utilize the benefit during that period while the utilization rate for female only includes only unique females who utilize the benefit during that period. For the purposes of calculating utilization rates in any given period, the results reflect the number of unique members utilizing the benefit for that period. Individual periods cannot be combined as member treatments may span multiple periods.
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Impact of COVID-19 on our Business
The COVID-19 pandemic has significantly impacted various markets around the world, including the United States. Restrictions related to COVID-19, including variants, and our responses to them have significantly impacted and may continue to impact how our members use our services, access our providers, and how our employees work and provide services to our clients and members, resulting in an impact on our revenue. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to monitor liquidity, as necessary, and ensure that our business can continue to operate during these uncertain times. COVID-19, including variants, and related restrictions continued to have a negative impact on our revenue growth for the six months ended June 30, 2022. To the extent that the markets we serve experience increased cases of COVID-19, including variants, state or local governments may reinstitute measures to control its spread, which could again negatively impact our members’ access to care, which could in turn impact our business. We will continue to evaluate the nature and extent of these potential impacts to our business, results of operations and liquidity.
For additional information on the various risks posed by the COVID-19 pandemic, please read Part II, Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenue
Revenue includes fertility benefits solution revenue, pharmacy benefits solution revenue and PEPM fees.
Fertility Benefits Solution Revenue
Fertility benefits solution revenue primarily represents utilization of our fertility benefits solution. Our client contracts are typically for a three-year term and pricing for this solution is established for each Smart Cycle treatment bundle, based in part on when the client first became a client and the number of members covered under the solution. Fertility benefits solution revenue includes amounts we receive directly from members, including deductibles, co-insurance and co-payments associated with the treatments under the fertility benefits solution. Revenue is recognized based on the negotiated price with our clients and includes the portion to be paid directly by the member. Revenue is recognized when Smart Cycle services are completed for a member. Revenue is also accrued for authorized Smart Cycle services rendered based on member appointments scheduled with a fertility specialist in our network but for which no claim has yet been reported, net of expected changes and cancellations of services.
Pharmacy Benefits Solution Revenue
Pharmacy benefits solution revenue primarily represents utilization of Progyny Rx. For clients who contract for the fertility benefits solution, we offer an add-on, separate, fully integrated pharmacy benefits solution designed by us. Progyny Rx provides our members with access to our formulary plan design, simplified authorization, prescription fulfillment and timely delivery of the medications used during treatment through our network of specialty pharmacies, as well as provides our members with medication administration training and other pharmacy support services. Prescription drugs are dispensed by our contracted mail order specialty pharmacies. Revenue related to the dispensing of prescription drugs by the specialty pharmacies in our network includes the prescription fees negotiated with our clients, including the portion that we collect directly from members (deductibles, co-insurance and co-payments). The contractual fees agreed to with our clients are inclusive of the cost of the prescription drug from our specialty providers, less any applicable discounts, as well as the related clinical and care management services. Revenue from these arrangements is recognized when the drugs are dispensed. This solution was introduced in the marketplace in the third quarter of 2017 and went live with a select number of clients on January 1, 2018.
Per employee per month (PEPM) fee
Clients who purchase our fertility benefits solution also pay us a population based PEPM fee which provides access to our PCAs for fertility and family building education and guidance and other digital tools for all of our covered members, regardless of whether or not they ultimately pursue fertility treatment. We earn a PEPM fee for the majority of our clients. Revenue from the PEPM fee is billed and recognized monthly based upon the contractual fee and the number of employees at that specific client for that month.
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Cost of Services
Our cost of services has three primary components: (1) fertility benefits services; (2) pharmacy benefits services; and (3) vendor rebates.
Fertility Benefits Services
Fertility benefits services costs include: (1) fees paid to provider clinics within our network, labs and anesthesiologists; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions: Provider Account Management, PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Our contracts with provider clinics are typically for a term of one to two years.
Pharmacy Benefits Services
Pharmacy benefits services costs include: (1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by our specialty pharmacy partners; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions: PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. Contracts with the specialty pharmacies are typically for a term of one year.
Vendor Rebates
We receive a rebate on certain medications purchased by our specialty pharmacies. Our contractual arrangements with pharmacy program partners provide for us to receive a rebate from established list prices, which is paid subsequent to dispensing. These rebates are recorded as a reduction to cost of services when prescriptions are dispensed.
Gross Profit and Gross Margin
Gross profit is total revenue less total cost of services. Gross margin is gross profit expressed as a percentage of total revenue. We expect that gross profit and gross margin will continue to be affected by various factors including the geographic location where treatments are performed, as well as pricing with each of our clients, provider clinics, labs, specialty pharmacies and pharmaceutical companies, all of which are negotiated separately, have different contracting start and end dates and durations which are not coterminous with each other. Additionally, staffing levels and the related personnel costs, including stock-based compensation expense, and other costs necessary to deliver our care management services will continue to grow as we continue to add clients and their associated members.
Operating Expenses
Our operating expenses consist of sales and marketing and general and administrative expenses.
Sales and Marketing Expense
Sales and marketing expense consists primarily of employee related costs, including salaries, bonuses, commissions, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization for those employees associated with sales and marketing. These expenses also include third-party consulting services, advertising, marketing, promotional events, and brand awareness activities. We expect sales and marketing expense to continue to increase in absolute dollars as we continue to invest and grow our business.
General and Administrative Expense
General and administrative expense consists primarily of employee related costs, including salaries, bonuses, benefits, stock-based compensation expense, other related costs, and an allocation of our general overhead, depreciation and amortization for those employees associated with general and administrative services such as executive, legal, human resources, information technology, accounting, and finance. These expenses also include third-party consulting services
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and facilities costs. We anticipate that we will incur additional general and administrative expenses on an ongoing basis as a public company and to support growth in the business.
Other Income (Expense), net
Other income (expense), net primarily includes investment income and losses as well as interest income and expense.
(Provision) Benefit for Income Taxes
We are subject to income taxes in the United States. Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the tax basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. We believe there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets were realizable.
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of revenue for those periods:
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
(in thousands)
Consolidated Statements of Operations Data:
Revenue$195,004 $128,651 $367,221 $250,784 
Cost of services(1)
151,117 99,030 290,385 192,256 
Gross profit43,887 29,621 76,836 58,528 
Operating expenses:  
Sales and marketing(1)
11,496 4,028 21,511 8,042 
General and administrative(1)
23,553 13,937 46,545 27,023 
Total operating expenses35,049 17,965 68,056 35,065 
Income from operations8,838 11,656 8,780 23,463 
Other income (expense), net65 264 (19)253 
Income before income taxes8,903 11,920 8,761 23,716 
(Provision) benefit for income taxes (135)6,807 4,978 10,177 
Net income$8,768 $18,727 $13,739 $33,893 
________________________________
(1)Includes stock-based compensation expense as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Cost of services$6,170 $1,461 $12,335 $2,748 
Sales and marketing5,079 798 9,842 1,479 
General and administrative12,405 4,258 25,977 7,324 
Total stock‑based compensation expense$23,654 $6,517 $48,154 $11,551 
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Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Consolidated Statements of Operations Data, as a percentage of revenue:
Revenue100.0 %100.0 %100.0 %100.0 %
Cost of services77.5 77.0 79.1 76.7 
Gross profit22.5 23.0 20.9 23.3 
Operating expenses:
Sales and marketing5.9 3.1 5.9 3.2 
General and administrative12.1 10.8 12.7 10.8 
Total operating expenses18.0 13.9 18.6 14.0 
Income from operations4.5 9.1 2.3 9.3 
Other income (expense), net0.1 0.2 (0.0)0.1 
Income before income taxes4.6 9.3 2.3 9.4 
(Provision) benefit for income taxes (0.0)5.3 1.4 4.1 
Net income4.6 %14.6 %3.7 %13.5 %
Non-GAAP Financial Measure – Adjusted EBITDA
Adjusted EBITDA is a supplemental financial measure that is not required by, or presented in accordance with, U.S. GAAP. We believe that Adjusted EBITDA, when taken together with our U.S. GAAP financial results, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation, evaluating our operating performance, and for internal planning and forecasting purposes.
Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. Some of the limitations of Adjusted EBITDA include: (1) it does not properly reflect capital commitments to be paid in the future; (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures; (3) it does not consider the impact of stock-based compensation expense; (4) it does not reflect other non-operating income and expenses, including other (income) expense, net and interest (income) expense, net; and (5) it does not reflect tax payments that may represent a reduction in cash available to us. In addition, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net income from continuing operations and other U.S. GAAP results.
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We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other (income) expense, net, interest income, net, and provision (benefit) for income taxes. The following table presents a reconciliation of Adjusted EBITDA to net income for each of the periods indicated:
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
(in thousands)
Net income$8,768 $18,727 $13,739 $33,893 
Add:
Depreciation and amortization386 296 750 718 
Stock‑based compensation expense23,654 6,517 48,154 11,551 
Other (income) expense, net(25)(12)71 (19)
Interest income, net(40)(252)(52)(234)
Provision (benefit) for income taxes135 (6,807)(4,978)(10,177)
Adjusted EBITDA$32,878 $18,469 $57,684 $35,732 
Comparison of Three Months Ended June 30, 2022 and 2021
Revenue
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
Revenue$195,004 $128,651 52 %
Revenue increased by $66.4 million, or 52%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase is primarily due to a $34.5 million, or 37%, increase in revenue from our fertility benefits solution and a $31.8 million, or 87%, increase in revenue from our Progyny Rx solution. The increase in revenue from our fertility benefits solution was primarily due to the increase in the number of clients and covered lives. The increase in revenue from our Progyny Rx solution was also driven by the number of clients and covered lives that added the Progyny Rx benefit. Progyny Rx went live with only a select number of clients on January 1, 2018 and has continued to add both new and existing fertility benefits solution clients since its initial launch.
Cost of Services
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
Cost of services$151,117 $99,030 53 %
Cost of services increased by $52.1 million, or 53%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatments delivered. This increase in cost of services was also attributable to an increase in personnel-related costs primarily due to incremental headcount as well as a $4.7 million increase in stock-based compensation expense.
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Gross Profit and Gross Margin
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
Gross profit$43,887 $29,621 48 %
Gross margin22.5 %23.0 %
Gross profit increased by $14.3 million, or 48%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Gross margin decreased 50 basis points for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to an increase in stock-based compensation expense for employees supporting our care management service functions, partially offset by ongoing efficiencies realized in the delivery of our care management services.
Operating Expenses
Sales and Marketing Expense
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
Sales and marketing$11,496 $4,028 185 %
Sales and marketing expense increased by $7.5 million, or 185% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily due to a $6.6 million increase in personnel-related costs attributable to an increase in stock-based compensation expense of $4.3 million, incremental headcount and an increase in sales commissions, as well as a $0.9 million increase in other related sales and marketing expenses.
General and Administrative Expense
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
General and administrative$23,553 $13,937 69 %
General and administrative expense increased by $9.6 million, or 69%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily due to an $8.0 million increase in personnel-related costs resulting from an increase in stock-based compensation expense and a $1.5 million increase in bad debt expense.
Other Income (Expense), Net
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
Other income (expense), net$65 $264 (75)%
Other income (expense), net decreased by $0.2 million, or 75%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to a decrease in interest income.
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(Provision) Benefit for Income Taxes
Three Months Ended
June 30,
20222021% Change
(dollars in thousands)
(Provision) benefit for income taxes ($135)$6,807 (102)%
For the three months ended June 30, 2022, we recorded a provision for income taxes of $0.1 million, as compared to a benefit for income taxes of $6.8 million for the three months ended June 30, 2021 primarily due to less equity compensation activity that occurred during the current year period.
Comparison of Six Months Ended June 30, 2022 and 2021
Revenue
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Revenue$367,221 $250,784 46 %
Revenue increased by $116.4 million, or 46%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase is primarily due to a $56.6 million, or 31%, increase in revenue from our fertility benefits solution and a $59.8 million, or 86%, increase in revenue from our Progyny Rx solution. The increase in revenue from our fertility benefits solution was primarily due to the increase in the number of clients and covered lives. The increase in revenue from our Progyny Rx solution was also driven by the number of clients and covered lives that added the Progyny Rx benefit. Progyny Rx went live with only a select number of clients on January 1, 2018 and has continued to add both new and existing fertility benefits solution clients since its initial launch. Our revenue growth for the six months ended June 30, 2022 and June 30, 2021 was negatively impacted by COVID-19.
Cost of Services
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Cost of services$290,385 $192,256 51 %
Cost of services increased by $98.1 million, or 51%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatments delivered. This increase in cost of services was also attributable to an increase in personnel-related costs primarily due to incremental headcount as well as a $9.6 million increase in stock-based compensation expense.
Gross Profit and Gross Margin
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Gross profit$76,836 $58,528 31 %
Gross margin20.9 %23.3 %
Gross profit increased by $18.3 million, or 31%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
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Gross margin decreased 240 basis points for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in stock-based compensation expense for employees supporting our care management service functions.
Operating Expenses
Sales and Marketing Expense
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Sales and marketing$21,511 $8,042 167 %
Sales and marketing expense increased by $13.5 million, or 167% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily due to a $12.3 million increase in personnel-related costs attributable to an increase in stock-based compensation expense of $8.4 million, incremental headcount and an increase in sales commissions, as well as a $1.2 million increase in other related sales and marketing expenses.
General and Administrative Expense
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
General and administrative$46,545 $27,023 72 %
General and administrative expense increased by $19.5 million, or 72%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily due to a $19.1 increase in personnel-related costs relating to incremental headcount attributable to an increase in stock-based compensation expense of $18.7 million, as well as a $1.3 million increase in bad debt expense. This increase was partially offset by a $0.9 million decrease in other related general and administrative expenses.
Other Income (Expense), Net
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Other income (expense), net($19)$253 (108)%
Other income (expense), net decreased by $0.3 million, or 108%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to a decrease in investment and interest income.
Benefit for Income Taxes
Six Months Ended
June 30,
20222021% Change
(dollars in thousands)
Benefit for income taxes $4,978