Incorporated in 2008, Progyny Inc. (PGNY, Financial) is a leading benefits management company operating in the fertility space in the United States. The company operates as a third-party insurance company that manages fertility benefit plans, and the most famous product sold by the company is Smart Cycle.
The company’s fertility solution can simultaneously benefit employers, patients and physicians. Some of the prominent clients of the company include Unilever plc (UL, Financial), Alphabet Inc (GOOGL, Financial), Microsoft Corporation (MSFT, Financial), 3M Company (MMM, Financial), Tyson Foods, Inc (TSN, Financial) and Uber Technologies Inc (UBER, Financial).
Here's why I think this company could be an attractive growth opportunity in the market.
Infertility is a growing concern
In the United States and across the globe, many women choosing to have children at a later stage of their lives are experiencing infertility, which can come in many forms such as not being able to conceive a child as well as stillbirths or miscarriages. As per the Center for Disease Control and Prevention, infertility affects 10% of women between the ages of 15 and 44 in the United States.
Barclays (SFLA, Financial) claims that the number of fertility procedures and treatments has grown at an estimated annual rate of 26% since 2017. The limited coverage of infertility treatments offered by traditional health insurance plans is limiting the opportunity for affected American families to seek proper treatment, and this is where Progyny comes into play by helping employers offer low-cost insurance options to help their employees fight infertility.
The company first purchases fertility treatments from various clinics and then offers these treatments as a bundle to employers. Progyny currently offers around 20 different bundles that are customized to meet the demands of different employers.
Progyny is already profitable
For the fourth quarter of 2021, the company reported revenue of $127.5 billion, up 27% from the corresponding quarter of the previous year. The gross profit also increased 21.5% year-over-year, aided by the scaling advantages enjoyed by the company. Progyny has topped Wall Street earnings estimates in each of the last eight quarters, which highlights the strong momentum behind the company’s business.
Another impressive fact is that over the last few years, the revenue of the company has exploded. In 2021, revenue increased 45% to $500 million while gross profit increased 60% to $112 million. The impressive revenue growth has been aided by both facilities benefit services and pharmacy benefit services, which grew 40% and 59%, respectively. From revenue of just $48.6 million in 2017, the company has come a long way to cross the $500 million mark, but this is still the beginning for the company as many employers in the United States are yet to offer insurance schemes that provide access to infertility treatment.
What stands out the most is that Progyny is already profitable despite being a very young company. Progyny reported a net profit of $65.8 million last year, and its ability to rake in profits at this stage of the business is a testament to the high margins associated with its business model.
More room to grow
Progyny’s family-building benefits solutions are increasingly becoming popular both among employers and employees. ART Cycles, which include fresh embryo transfer, embryo banking, frozen embryo transfers, egg freezing, etc., reached 7,623 in 2021, a growth of 33% compared to 2020. The company’s client base has increased by around 231% since its IPO in 2019 as well.
As well as the number of clients, the utilization rate of all members, which measures the members using the services offered by Progyny, has also improved by 14 basis points. The client retention rate was close to 100% seen in 2021, which is a clear indication that the company’s products are adding value to its customer base. This high client retention rate is a confirmation of the lack of alternatives available for end-users as well. The company, therefore, seems well-positioned to benefit from being the first mover into a lucrative business sector.
The infertility treatment market is rapidly growing in the United States due to many factors, including the growing awareness of treatment options and the importance placed on family building by top employers in the nation. Progyny, as a leading solutions provider catering to the infertility treatment market, is in a good position to make the most of these favorable macroeconomic developments. The company has a long runway for growth, and its earnings are likely to grow in double-digits in the next five years. Thus, I believe investors searching for opportunities in small-cap companies might find Progyny an attractive opportunity today.