10-Q 1 pgny-20210930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

TRANSITION 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)

Delaware

27-2220139

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,

$0.0001 par value per share

PGNY

The 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     No  

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      No  

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

 

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 31, 2021, the registrant had 90,430,297 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

6

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

7

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020

8

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020

9

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

10

Notes to Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

73

Signatures

74

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, and the impact 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. 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”, 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 COVID-19 pandemic, including variants, has had and is expected to continue to have, and similar health epidemics 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 utilization of our solutions could have an adverse effect on our business, financial condition and results of operations.
We have a history of operating losses and may not sustain profitability in the future.
We have a limited operating history with our current platform of solutions, which makes it difficult to predict our future results of operations.
Changes in the health insurance market could harm our business, financial condition and results of operations.
The health benefits industry may be subject to negative publicity, which could adversely affect our business, financial condition and results of operations.
If our computer 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, 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.
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.
We operate in a highly regulated industry and must comply with a significant number of complex and evolving requirements.

4

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 may announce material business and financial information to our investors using our investor relations website at investors.progyny.com. We therefore encourage investors and others interested in Progyny to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls.

5

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Progyny, Inc.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

    

September 30, 

    

December 31, 

2021

2020

ASSETS

 

  

 

  

Current assets:

Cash and cash equivalents

$

92,224

$

70,305

Marketable securities

22,086

38,994

Accounts receivable, net of $16,130 and $9,502 of allowance at September 30, 2021 and December 31, 2020, respectively

 

135,181

 

75,664

Prepaid expenses and other current assets

 

4,933

 

5,259

Total current assets

 

254,424

 

190,222

Property and equipment, net

 

4,702

 

3,400

Operating lease right-of-use assets

8,024

8,668

Goodwill

 

11,880

 

11,880

Intangible assets, net

 

723

 

1,213

Deferred tax assets

55,828

37,971

Other noncurrent assets

 

1,101

 

573

Total assets

$

336,682

$

253,927

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

55,425

$

43,514

Accrued expenses and other current liabilities

 

49,059

 

34,272

Total current liabilities

 

104,484

 

77,786

Operating lease noncurrent liabilities

7,647

8,318

Other noncurrent liabilities

438

876

Total liabilities

 

112,569

 

86,980

Commitments and Contingencies (Note 7)

 

  

 

  

STOCKHOLDERS' EQUITY

 

  

 

  

Common stock, $0.0001 par value; 1,000,000,000 shares authorized at September 30, 2021 and December 31, 2020; 90,008,810 and 87,054,329 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

9

 

9

Additional paid-in capital

 

242,929

 

236,139

Treasury stock, at cost, $0.0001 par value; 615,980 shares at September 30, 2021 and December 31, 2020

 

(1,009)

 

(1,009)

Accumulated deficit

 

(17,504)

 

(68,193)

Accumulated other comprehensive income (loss)

(312)

1

Total stockholders’ equity

 

224,113

 

166,947

Total liabilities and stockholders’ equity

$

336,682

$

253,927

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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Revenue

$

122,284

$

98,928

$

373,068

$

244,557

Cost of services

 

93,792

  

78,092

  

286,048

  

195,164

Gross profit

 

28,492

  

20,836

  

87,020

  

49,393

Operating expenses:

 

 

  

 

  

 

  

 

Sales and marketing

 

4,441

  

3,355

  

12,483

  

10,230

General and administrative

 

14,986

  

12,653

  

42,009

  

31,976

Total operating expenses

 

19,427

  

16,008

  

54,492

  

42,206

Income from operations

 

9,065

  

4,828

  

32,528

  

7,187

Other income (expense):

 

 

  

 

  

 

  

 

Other income (expense), net

(92)

11

(73)

178

Interest income (expense), net

 

144

  

(17)

  

378

  

138

Total other income (expense), net

 

52

  

(6)

  

305

  

316

Income before income taxes

 

9,117

  

4,822

  

32,833

  

7,503

Benefit (provision) for income taxes

7,679

  

  

17,856

  

(116)

Net income

$

16,796

$

4,822

$

50,689

$

7,387

Net income per share:

 

 

  

 

  

  

 

Basic

$

0.19

$

0.06

$

0.57

$

0.09

Diluted

$

0.17

  

$

0.05

  

$

0.51

  

$

0.07

Weighted-average shares used in computing net income per share:

 

  

 

  

  

 

Basic

89,571,226

  

86,265,297

  

88,594,135

  

85,364,608

Diluted

100,370,331

  

98,969,588

  

100,326,221

  

98,936,489

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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net income

$

16,796

$

4,822

$

50,689

$

7,387

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities

(42)

12

(313)

17

Total other comprehensive income (loss)

(42)

12

(313)

17

Total comprehensive income

$

16,754

$

4,834

$

50,376

$

7,404

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)

Additional 

Other

Common Stock

Treasury

Paid in

Accumulated 

Comprehensive

    

Shares

    

Amount

    

Stock

Capital

    

Deficit

    

Income (Loss)

    

Total

For the three months ended September 30, 2021:

Balance at June 30, 2021

 

89,360,084

$

9

$

(1,009)

$

240,111

$

(34,300)

$

(270)

$

204,541

Issuance of employee equity awards, net of shares withheld

 

648,726

(4,361)

(4,361)

Stock-based compensation

 

7,179

7,179

Other comprehensive loss

(42)

(42)

Net income

 

16,796

16,796

Balance at September 30, 2021

 

90,008,810

$

9

$

(1,009)

$

242,929

$

(17,504)

$

(312)

$

224,113

For the three months ended September 30, 2020:

Balance at June 30, 2020

 

85,778,057

$

9

$

(1,009)

$

231,792

$

(112,087)

$

5

$

118,710

Issuance of employee equity awards, net of shares withheld

 

764,862

(628)

(628)

Stock-based compensation

 

3,071

3,071

Other comprehensive income

12

12

Initial public offering costs

(101)

(101)

Net income

 

 

4,822

4,822

Balance at September 30, 2020

 

86,542,919

$

9

(1,009)

234,134

(107,265)

17

125,886

For the nine months ended September 30, 2021:

Balance at December 31, 2020

 

87,054,329

$

9

$

(1,009)

$

236,139

$

(68,193)

$

1

$

166,947

Issuance of employee equity awards, net of shares withheld

 

2,129,490

(11,952)

(11,952)

Stock-based compensation

 

18,742

18,742

Warrant exercise

824,991

0

0

Other comprehensive loss

(313)

(313)

Net income

 

 

50,689

50,689

Balance at September 30, 2021

 

90,008,810

$

9

$

(1,009)

$

242,929

$

(17,504)

$

(312)

$

224,113

For the nine months ended September 30, 2020:

Balance at December 31, 2019

 

84,188,202

$

8

$

(1,009)

$

228,755

$

(113,483)

$

$

114,271

Issuance of employee equity awards, net of shares withheld

 

2,354,717

1

(3,296)

(3,295)

Stock-based compensation

 

8,661

8,661

Reduction in initial public offering costs

14

14

Other comprehensive income

17

17

Impact of adoption of ASU 2016-13

(1,169)

(1,169)

Net income

 

7,387

7,387

Balance at September 30, 2020

 

86,542,919

$

9

$

(1,009)

$

234,134

$

(107,265)

$

17

$

125,886

The accompanying notes are an integral part of these unaudited consolidated financial statements.

9

Progyny, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Nine Months Ended

September 30, 

    

2021

    

2020

OPERATING ACTIVITIES

 

  

  

Net income

$

50,689

$

7,387

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

  

 

  

Deferred tax (benefit) expense

 

(17,856)

  

 

116

Non-cash interest expense

38

56

Depreciation and amortization

 

985

  

 

1,442

Stock-based compensation expense

 

18,698

  

 

8,661

Bad debt expense

 

7,221

  

 

3,922

Changes in operating assets and liabilities:

 

Accounts receivable

 

(66,738)

  

 

(34,952)

Prepaid expenses and other current assets

 

414

  

 

3,619

Accounts payable

 

11,674

  

 

23,719

Accrued expenses and other current liabilities

 

13,089

  

 

15,019

Other noncurrent assets and liabilities

(992)

677

Net cash provided by operating activities

 

17,222

  

 

29,666

INVESTING ACTIVITIES

 

 

  

 

  

Purchase of property and equipment, net

 

(1,517)

  

 

(940)

Purchase of marketable securities

(90,481)

(64,978)

Sale of marketable securities

107,076

14,000

Net cash provided by (used in) investing activities

 

15,078

  

 

(51,918)

FINANCING ACTIVITIES

 

 

  

 

  

Payment of initial public offering costs

(892)

Proceeds from exercise of stock options

 

1,753

  

 

2,078

Payment of employee taxes related to equity awards

(13,106)

(6,419)

Proceeds from contributions to employee stock purchase plan

972

1,068

Net cash (used in) financing activities

 

(10,381)

  

 

(4,165)

Net increase (decrease) in cash and cash equivalents

 

21,919

  

 

(26,417)

Cash and cash equivalents, beginning of period

 

70,305

  

 

80,382

Cash and cash equivalents, end of period

$

92,224

$

53,965

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Additions of property and equipment, net included in accounts payable and accrued expenses

$

262

$

33

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 subsidiary 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.

Emerging Growth Company Status

Prior to December 31, 2020, the Company was an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it was (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opted out of the extended transition period provided in the JOBS Act. Based on the market value of the Company’s common stock as of June 30, 2020, the Company ceased to qualify as an emerging growth company as of December 31, 2020. As a result, the Company no longer was able to use the extended transition period for complying with new or revised accounting standards available to emerging growth companies and was required to adopt new or revised accounting standards as of the effective dates for public companies. Refer to Note 2 – Significant Accounting Policies below for a discussion of new accounting pronouncements adopted in the fourth quarter of 2020 with an effective date of January 1, 2020.

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

11

all adjustments necessary to fairly state our financial position as of September 30, 2021, the results of our operations for the three and nine months ended September 30, 2021 and 2020 and the results of our cash flows for the nine months ended September 30, 2021 and 2020. 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, 2020, filed with the SEC on March 1, 2021.

The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results expected for the year ending December 31, 2021 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 already 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.

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 revenue recognition including accrued receivables, accrued claims payable, allowance for doubtful accounts, stock-based compensation, 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

12

Allocation of the transaction price to the performance obligations in the contract
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 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 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 benefit 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

13

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 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 benefit 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.

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.

14

There are no material contract asset or contract liability balances as of September 30, 2021 and December 31, 2020.

Accrued Receivables and Accrued Claims Payable

Accrued receivables are estimated based on historical experience for those fertility benefit services provided but for which a claim has not been received from the provider clinic at the end of each 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 historical gross margin achieved on fertility benefit services. Estimates are adjusted to actual at the time of billing. Adjustments to original estimates have not been material.

As of September 30, 2021 and December 31, 2020, accrued receivables were $34.2 million and $28.2 million. Accrued receivables are included within accounts receivable in the balance sheet.  

Accrued claims payable of $26.3 million and $22.8 million as of September 30, 2021 and December 31, 2020, respectively, are included within accrued expenses and other current liabilities in the balance sheet. Claims payable are paid within 30 days based on contractual terms.

As of September 30, 2021 and December 31, 2020, unbilled receivables, which represent claims received and approved but unbilled at the end of the reporting period, were $24.8 million and $16.4 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 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 statements of operations. The following table provides a summary of the activity in this allowance (in thousands):

Nine Months Ended September 30, 2021

Balance at
Beginning
of Period

Charged
to Costs
and Expenses

Write-offs

Balance
at End
of Period

Allowance for doubtful accounts

  

$

9,502

  

$

7,221

  

$

(593)

  

$

16,130

Cost of Services

Fertility Benefit Services

Fertility benefit 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, 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

15

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 Benefit Services

Pharmacy benefit 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, 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 Claim 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 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 of 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company adopted this standard on January 1, 2020, using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company not to reassess (i) whether any expired or existing contracts contained leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for existing leases. The Company also elected to not reassess lease terms for existing leases using hindsight and to account for each separate lease and non-lease component as a single lease component. As a result of the adoption of the new leasing guidance, the Company recorded right-of-use assets and lease liabilities of $9.5 million and $9.9 million, respectively. The right-of-use assets are classified within operating lease right-of-use assets on the Company’s consolidated balance sheet. Lease liabilities are classified within accrued expenses and other current liabilities and operating lease noncurrent liabilities on the Company’s consolidated balance sheet. The adoption of the standard did not materially impact the Company’s statement of operations or statement of cash flows for the year ended December 31, 2020. See Note 5 – Leases for further details.  

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of the new standard impacted the Company’s methodology for calculating and estimating the allowance for doubtful accounts. In the fourth quarter of 2020, the Company adopted this standard as of January 1, 2020 using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to accumulated deficit of $1.2 million. As disclosed in Note 17 – Unaudited Quarterly Results of Operations Data in the Company’s Annual Report on Form 10-K, quarterly financial information for interim periods of 2020 has been recast, which includes a $0.5 million and $0.2 million impact to the previously disclosed general and administrative expense for the three and nine month periods ended September 30, 2020, respectively.

In August 2018, the FASB issued final guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (“ASC”) 350-402 Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40) to determine which implementation costs to capitalize as assets. The Company adopted this standard on January 1, 2020. The adoption of the new standard did not have a material effect on the Company’s consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

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 new standard will be effective for the Company for the fiscal year beginning January 1, 2022 and should be applied prospectively to modifications or exchanges occurring on or after this date. The Company currently does not expect the adoption of the new standard to have a material effect on its consolidated financial statements, however, this impact will depend on the terms of written call options, such as warrants, or financings issued or modified in the future.

3.           Revenue

Disaggregated revenue

The following table disaggregates revenue by service (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Fertility benefit services revenue

$

85,313

$

73,141

$

266,433

$

178,845

Pharmacy benefit services revenue

 

36,971

 

25,787

 

106,635

 

65,712

Total revenue

$

122,284

$

98,928

$

373,068

$

244,557

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:

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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 September 30, 2021 and December 31, 2020, the Company had $69.5 million and $66.3 million, respectively, in financial assets held in money market accounts and $22.1 million and $39.0 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 September 30, 2021 and December 31, 2020, 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 will expire in May 2029. Pursuant to the lease, the Company will 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 was $0.3 million for the operating lease for the three months ended September 30, 2021 and September 30, 2020. For the nine months ended September 30, 2021 and September 30, 2020, lease expense for the operating lease was $0.9 million and $1.0 million, respectively.

Cash outflows from operating activities attributable to the operating lease for the nine months ended September 30, 2021 and September 30, 2020 was $1.0 million and $0.5 million, respectively.

Information related to our leases is as follows (in thousands):

Balance Sheet Location

September 30, 2021

December 31, 2020

Operating Leases

Right-of-use asset

Operating lease right-of-use assets

$

8,024

$

8,668

Short-term lease liabilities

Accrued expenses and other current liabilities

$

1,231

$

1,231

Long-term lease liabilities

Operating lease noncurrent liabilities

$

7,647

$

8,318

Other information

Weighted average remaining lease term, operating lease

7.7 years

8.4 years

Weighted average discount rate, operating lease

4.29%

4.29%

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Future minimum facility lease payments as of September 30, 2021, were as follows:

Operating Lease Payments

as of September 30, 2021

Year Ending December 31:

    

2021

    

$

321

2022

 

1,286

2023

 

1,286

2024

1,326

2025

1,407

Thereafter

 

4,807

Total undiscounted lease payments

$

10,433

Less: imputed interest

1,555

Present value of lease liabilities

$

8,878

Less: current portion of operating lease liabilities

1,231

Operating lease noncurrent liabilities

$

7,647

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 copayments, coinsurance, and deductibles. The SVB Line of Credit matured in June 2021.

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. 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 nine months ended September 30, 2021 and 2020, the Company recorded interest expense on the SVB Line of Credit of $38,000 and $56,000, respectively.

7.         Commitments and Contingencies

Arbitration/Litigation

On January 14, 2019, a vendor filed a Demand for Arbitration and Statement of Claim against the Company (“Demand”) for alleged breach of the November 10, 2017 Preferred Specialty Pharmacy Agreement

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(“Agreement”) between the Company and the vendor. On March 13, 2019, the Company terminated the Agreement for material breach by the vendor. On April 3, 2019, the vendor filed a Second Amended Demand for Arbitration (“SAD”) for breach of the Agreement. The vendor was seeking $25.0 million in damages, fees, interest and cost. Final arbitration arguments were held on October 20, 2020. To expeditiously resolve the matter, the parties ultimately proposed a settlement to the Arbitration Panel on November 16, 2020. In December 2020, the Company finalized and settled the arbitration for $5.75 million without admission of liability to avoid further legal costs.

The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations, or cash flows.

8.           Stock-based Compensation

The following table summarizes stock-based compensation expense, which was included in the statements of operations as follows (in thousands):  

Three Months Ended

Nine Months Ended

September 30

September 30

    

2021

    

2020

    

2021

    

2020

Cost of services

$

1,536

$

818

$

4,284

$

1,970

Selling and marketing

917

  

 

351

2,396

 

1,475

General and administrative

4,694

  

 

1,902

12,018

 

5,216

Total stock-based compensation expense

$

7,147

  

$

3,071

$

18,698

$

8,661

9.           Income Taxes

For the nine months ended September 30, 2021 and 2020, 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 nine months ended September 30, 2021, the Company recorded a benefit for taxes of $17.9 million primarily due to equity compensation activity that occurred during the period. During the nine months ended September 30, 2020, the Company recorded a provision for taxes of $0.1 million.

10.           Net Income Per Share

Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income per share attributable to common stockholders is computed by dividing the diluted net income attributable to common stockholders 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 attributable to common stockholders is the same as basic net loss per share attributable to common stockholders because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

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A reconciliation of net income available to common stockholders and the number of shares in the calculation of basic and diluted net income per share follows (in thousands, except share and per share amounts):

  

Three Months Ended

Nine Months Ended

September 30

September 30

    

2021

    

2020

    

2021

    

2020

Basic net income per common share:

Numerator:

  

  

Net income

  

$

16,796

$

4,822

$

50,689

$

7,387

Denominator:

Weighted-average shares used in computing basic net income per share attributable to common stockholders

  

89,571,226

86,265,297

88,594,135

85,364,608

Basic net income per share attributable to common stockholders

$

0.19

$

0.06