Progyny Inc

NASDAQ:PGNY

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Progyny Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants have been on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

[James Hart, IR]

Thank you, John and good afternoon everyone. Welcome to our fourth quarter conference call. With me today are Pete Anevski, CEO of Progyny; Michael Sturmer, President; and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I’d like to remind you that today’s call contains forward-looking statements, including but not limited to statements about our financial outlook for both the first quarter and full year of 2022 including our expected utilization rates and mix, the impact of COVID-19 including variants on our business, clients, member activity and industry operations, our ability to acquire new clients and retain upsell existing clients, our market opportunity, size and expectation of long-term growth, our plan for the extension of our business including expansion to other market and of other services offered, our business performance, industry outlook, strategy, future investments, plans and objectives and other non-historical statements as further described in our press release that was issued this afternoon. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Progyny’s growth, market opportunities and general economic and business conditions. 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. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our most recent 10-Q. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, gross margin, excluding stock-based compensation and operating expenses excluding stock-based compensation. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progyny.com. I would now like to turn the call over to Pete.

[Pete Anevski, CEO]

Thank you, Jamie. Thanks everyone for joining us today. Mark will walk you through the details of Q4 and full year shortly, but before he does, I'll give you some high level thoughts. In 2021, the Company grew direct levels both revenue which grew 45% over 2020 and it seems its higher levels of profitability with 13.5% adjusted EBITDA margins. We also maintained our nearly 100% retention rate among our existing clients, driven by our industry leading clinical outcomes, which we achieved for the sixth year in a row as well as our exceptionable member and client satisfaction, which is evident in our best ever NPS score of plus 81. On top of this, we had our most successful selling season ever which is the most important drivers to our long-term growth by adding a record 85 new clients and 1.2 million new covered lives. We accomplish all this despite the unexpected COVID-related waves that marginally disrupted member activity from time-to-time including the most recent disruption due to Omicron at the end of the fourth quarter. When we issued our guidance here in early November, we've been experiencing increased utilization as September, October and November, all had strong sequential growth month over month. When the Omicron variant COVID-19 emerged in early December and spread across the country faster than any other variant, overall member activities slowed sharply enough that it had an impact on our results in the quarter that was beyond our ability to predict. To put that into perspective, we typically see in our guidance for Q4 contemplate a decrease in memory utilization from November to December due the holidays and routine clinic closures. However, declined we actually experienced in December due to Omicron was nearly twice what we were anticipating, resulting in a negative impact of revenue of approximately 9 million for the quarter. This Omicron related impact in member activity continued into January, as the variant continued to spread across the country and infection levels hit their peak. However, as the awareness grew that the variant was generally producing more mild illness, our members mindset with respect to pursuing treatment improved. Based on the visibility we currently have, number activity for February and March, as well as the limited visibility we have April has rapidly recovers normal levels and the Omicron related impact on memory utilization appears to be behind us. One of the most important themes emerging from the last few years is that the substantial majority of facility patients recognized the time sensitive nature of their treatment and have continued to be highly resilient in the pursuit of care even against the backdrop of the pandemic. This can be seen through the consistency in our quarterly utilization rates over the past two years. Additionally, unlike other areas of healthcare that may be significantly strained, our altogether disrupt following the surge of COVID cases, the vast majority of fertility clinics are located in hospital settings. Clinics have had the resources they need to remain open and available to care for patients even as COVID cases spiked in parts of the country. And whenever COVID is more acutely impacted our member activity, whether it has been due to an increase in cases because of government recommendations ways of shutdowns or reopening, those effects have been both short lasting and have only affected activity for a relatively small proportion of members overall. Although, we can't control a global pandemic and its marginal impact on utilization the important takeaways that we are performing at the highest levels in the areas that we do impact. This includes the member experience with our benefit offering, our industry-leading clinical outcomes that are critical to that member experience, our high levels of client satisfaction, which are due to the value of our favorable outcomes generate, our client upsells and renewals, which further demonstrate client satisfaction and our record levels of new business. With the near 100% client retention that I previously mentioned, today we have more than 265 clients under commitment reflecting 4 million covered lives, which are up more than 50% from a year ago. This reflects in approximately 3% share of the large self-insured employers in our target market, which doesn't yet include other types of employers, such as fully-insured companies, school systems, unions and governmental entities and agencies. Now let's turn over to current sales momentum. While it's too soon to provide you with any detailed quantitative comments, since we are in the various early stages of our 2022 selling season, our sales momentum from 2021 is continuing into 2022. We are seeing meaningful increases across all metrics we use to monitor sales progress, versus early selling season progress a year ago at this time, including our total active pipeline, our new pipeline development year-to-date and year-to-date sales wins so far. This early selling season data gives us confidence that the macro trends driving demand for fertility benefits combined with our recognition as the leader in this space position us well to continue to sustain our momentum from last year's selling season into 2022. Given the caliber of the companies that we work with today or engaging within our current active pipeline, it's clear that Progyny has become the provider of choice for fertility solutions amongst the best known and most successful companies in the world. A key contributor to our sales success has been a high rate of member satisfaction, and in 2021, our NPS score increased to the highest it's ever been to plus 81. Given that most healthcare companies routinely score barely above zero or in negative digits, we are incredibly proud of this result, which indicates that our members continue to be extremely satisfied with the services we provide them and the results we achieve for them. This is the fourth consecutive year we have increased our NPS, which speaks to our ongoing focus to maintain or improve member level services, even as we continue to rapidly expand the business. We ended 2021 with more than twice as many clients and covered lives as we had at the time of our IPO a little over two years ago, and over that period of time, our NPS which is already at an industry-leading levels increased by an additional 10 points. And in January of 2022, we launched a positive benefit to our largest ever cohort of new clients and covered lives. We have a proven track record in scaling the functions and resources that are needed each year in anticipation of the step function increase that we see in our business, and I'm pleased to report that this year's record client launches have been successful across the board. We begin 2022 in our strongest ever competitive position, with a solution that is unparalleled. Nevertheless, we remain focused on developing and introducing new enhancements to our solution. This year, we are looking to increase the level of support that we provide to our male members specifically addressing those issues affecting male fertility by expanding our service and adding new capabilities. This will provide us within an enhanced product for upsell in the future. When looking at the underlying causing of infertility, male factor infertility meaning the male partner has an issue that has made conception more difficult is diagnosed equally and as often as female factor is. And while a reproductive endocrinologist is often able to effectively treat the couple regardless of the underlying cause in a select number of cases, a reproductive urologist, RU, may be beneficial to properly diagnose and treat the issues of the male partner. Less than 20% of urologist in the country focus on reproductive health issues and the carriers may not have this subset of providers or coverage of the services in their network. This lack of coverage creates a gap, which is the issue the Progyny is specifically addressing with this enhance offering. Separately, we're also expanding our geographic footprint by building our solution to be offered in the Canadian market. This is a natural extension for us given that many of our existing clients have employee populations there. Although, the Canadian government provides universal health care suite citizens, comprehensive facility coverage is not included in that program. Additionally, the employer supplemental coverage for fertility is even further behind where the U.S. was when we launched our benefit in 2016. As a result, significant majority of Canadians have no coverage today and are forced to fund treatment on their own when they [could] afford to do so. Companies that do provide a facility benefit under their supplemental health plans typically sell on these plans and look the same way large employer sponsored health coverage here in the U.S. We have a clear opportunity to address this unmet need in Canada, where we can help educate and drive awareness and ultimately help drive access to care, similar to what we've been achieving here in the U.S. We've been leveraging our relationships in the industry to build a Canadian network of leading providers with the expect to manage and much the same way that we do our U.S. network, actively monitoring the patient experience, ensuring adherence to best practices and measuring outcomes to ensure that our members are having healthy dependencies and greater overall success and their family building journey. We're excited about these new areas of focus and we'll update you on our progress in these areas including timing for go-to-market on future calls. These earnings expect it to have an impact on this selling season, but they should set us up nicely for teacher selling seasons beyond 2022. At the leading facility benefits manager, we've developed a significant competitive advantage in the marketplace. Once significant factor is that we already have most comprehensive facility dataset in the industry and that dataset grows significantly each year. In 2021, we managed over 20,000 ART cycles up nearly 50% from the prior year. The scale at which we are growing ART cycle continues to expand our insights, which then widens our competitive advantage because it deepens our understanding of the ways people are pursuing family building. As a result, Progynys is in a unique position to continue advancing services to enhance the member experience while also delivering value to our clients. Let me now turn the call over to Mark and he'll walk into results in more detail. Mark.

[Mark Livingston, CFO]

Thank you, Pete, and good afternoon, everyone. I'll begin by taking you through our fourth quarter and full year 2021 results and then provide our expectations for 2022. In the fourth quarter, revenue grew 27% to $127.6 million while revenue increased meaningfully on a sequential basis from the third quarter driven by strong utilization in October and November, the onset of the Omicron variant impacted member activity in December. As Pete mentioned a moment ago, the sequential monthly decline we actually experienced in December due to Omicron was nearly twice what we were anticipating, resulting in a negative impact to revenue of approximately $9 million in the quarter. And while Omicron continued to have an effect on activity in January, we have seen member utilization return to more typical levels in February and based on the visibility we have also in March. For the full year revenue grew 45% to $500.6 million. We are pleased to have reached the milestone of a $0.5 billion in annual revenue in what was just our sixth year of offering the benefits. It was only three years ago in 2018 that we crossed a $100 million in annual revenue, which puts the rapid growth we've achieved into perspective. Turning to the components of the top line, medical revenue increased 19% in the fourth quarter to 89.2 million, while growing 40% over the full year to 355.6 million. The growth in medical revenue both in the quarter and the year was driven by our higher number of clients and covered lives though our growth in the fourth quarter was impacted by the Omicron variant. Pharmacy revenue increased 50% in the fourth quarter to 38.4 million. Over the full-year Pharmacy revenue grew 59% to 145 million. Our growth in pharmacy was primarily driven by the increased a number of clients who have Progyny Rx as compared to a year ago though as was the case for medical revenues, our pharmacy revenue growth in the fourth quarter was also impacted by Omicron. Since launching the pharmacy benefits in 2018, we've seen an uptick each year in the percentage of our newest clients selecting the integrated benefits. Two years ago, 75% of our new clients chose to launch with a pharmacy benefit that increased to 84% the following year and in the most recent selling season 93% of clients added Progyny Rx. As a result on a blended basis, the percentage of our clients who have Progyny Rx is growing from 73% in 2021 to 81% of all of our existing and committed clients for 2020. And while we're very pleased with the adoption of Progyny Rx to-date, there continues to be a meaningful future upsell potential with those remaining clients. We ended the quarter with 191 clients, representing an average of 2.9 million covered lives during the fourth quarter. This compared to 135 clients or an average of 2.3 million covered lives in the fourth quarter last year, reflecting a 25% growth in covered lives over the past year. The growth in covered lives throughout 2021 was again the result of new client additions as well as organic growth within the existing client base, as a number of our clients continue to expand their workforce during the year. Turning now to our utilization metrics. During the quarter 7,623 ART cycles were performed, reflecting a 33% increase as compared to the fourth quarter of 2020. For the full year, ART cycles grew nearly 50% reflecting the continued high rate of demand we are seeing for fertility services among our members. Female utilization, which is what principally, drives our financial results given that the female partner is the one who undergoes the more extensive treatment for facility was 0.46 this quarter as compared to 0.45% a year ago. For the full year, female utilization was 1.07%. This compared to 0.97% in 2020, which I remind you had been negatively affected by the temporary closure of most fertility clinics at the onset of the pandemic in the spring of 2020. As a point of comparison, our female utilization rate for 2021 is consistent with what we reported in 2019. While utilization can vary due to a number of factors, the recovery in our full year utilization to what we had been seeing pre-pandemic reinforces both the essential nature of fertility treatments as well as its time sensitivity for most patients. Treatment makes it also a contributing factor to revenue, as utilization associated with consultations and diagnostic testing and procedures which occur during the early stages of fertility treatments contribute a lower revenue value as compared with more advanced procedures that happen later in a member's fertility journey. Interruptions in the members journey caused by the emergence and rapid spread of Omicron variants also negatively impacted mix in December. Turning now to our margins. Gross profit increased 22% from the fourth quarter of 2020 to 25.1 million. Our reported gross margin of 19.7% this quarter reflects a decrease of 90 basis points from the fourth quarter last year, due primarily to the impact of non-cash stock-based comp, which was partially offset by the operating efficiencies in care management. In early November, we issued a broad-based grant of new equity to our workforce, which has increased the level of non-cash, stock-based compensation in our cost of services and operating expenses, excluding the impact of stock comp in both periods, gross margin in the fourth quarter, increased 170 basis points over the fourth quarter of 2020 to 23.4% reflecting the impact of renewals with our providers and pharmacy program partners, as well as operating efficiencies in the delivery of care of our care management services. For the full year, gross profit increased 60% to $112.1 million. Our reported gross margin of 22.4% for the full year reflected an increase of 210 basis points from 2020. Gross margin excluding the impact of stock-based comp was 24.2% in 2021, reflecting an increase of 300 basis points from a year ago, due to the same reasons that affected the fourth quarter. The press release issued today includes the table reconciling the impact of stock-based comp to gross profit and gross margin as well as our operating expenses lines. Turning now operating expenses, sales and marketing expense was 6% of revenue in the fourth quarter as compared to 4.8% in the fourth quarter a year ago excluding the impact of stock-comp in both periods. Sales and marketing was 3.6% of revenue in the quarter, reflecting an improvement of 60 basis points from the fourth quarter a year ago. For the full year, sales and marketing was 4% of revenue, reflecting a 40 basis point improvement from 2020. When excluding the impact of stock-comp, sales and marketing was 2.9% in 2021, an improvement of 90 basis points from 2020. Although, we have continued to rapidly grow the business through the combination of adding more new clients and lives each year as well as by retaining a very high rate of existing clients, we have been able to improve our sales and marketing efficiency each year. G&A was 13.8% of revenue this quarter, as compared to 14.7% in the fourth quarter a year ago, excluding stock comp from both periods, G&A as a percentage of revenue improved by 410 basis points. The improvement is primarily due to the elimination of previously disclosed legal expenses, which didn't carry to 2021. For the full year, G&A was 11.9% of revenue, which compared to 13.5% in 2020. Excluding the impact of stock comp from both periods, G&A was 8.1% of revenue in 2021. This was a 320 basis point improvement from 2020 and reflects the elimination of the certain legal costs as well as the efficiencies that we have realized in our back office functions, as we expand the business. With the margin improvements we have made throughout the business, adjusted EBITDA increased significantly in both the quarter and the year. In the fourth quarter adjusted EBITDA grew 28% to $15.1 million, adjusted EBITDA margin of 11.9% in the fourth quarter, reflected a modest expansion from the year ago period, as we ramped up resources in Q3 and Q4 in advance of the on-boarding the record number of clients we sold for 2022. For the full year, adjusted EBITDA, more than doubled to $67.3 million, primarily reflecting our higher revenue an improved operating leverage across the business. Adjusted EBITDA margin of 13.5% in 2021 reflected an increase of 410 basis points from 2020. We continue to believe that margin incremental revenue is an indicator of where the business is trending. On that basis, our adjusted EBITDA margin or incremental revenue in 2021 was 22.4%, reflecting a meaningful increase as compared to the 16.7% that we achieved in 2020. The increased highlights our expanding rate of margin captured on new revenue. Net income was $15.1 million in the fourth quarter or $0.15 per share. This compared to net income of $39.1 million or $0.39 per share in the fourth quarter of 2020. The decrease was primarily due to a lower benefit for income taxes, as the fourth quarter a year ago reflected a $38 million tax benefit in connection with the release of our valuation allowance on deferred tax assets as well as a higher non-cash stock-based comp expensive 2021 partially offset by operating efficiencies relies on our higher revenues. In 2021, net income was $65.8 million or $0.66 per share. This compared to $46.4 million or $0.47 per share in 2020. The increase was due primarily to operating efficiencies realized throughout the business, partially offset by a lower benefit for income taxes. Turning now to our cash flow and balance sheet. Operating cash generated in the quarter was $8.8 million as compared to cash generated of $6.5 million in the year ago period. The improvement was due to our higher profitability as well as ordinary timing items in both periods. For the full year, we generated $26 million of operating cash flow, which compares to $36.2 million a year ago. I'll remind you that our cash flow in 2021 reflects a change in the timing of payments that we're receiving under the new pharmacy partner arrangements that were entered into at the beginning of the year. And in fact, we chose to leverage the strength of our balance sheet by lengthening the timing of when we receive our pharmacy rebates in order to deliver more margin and profitability. As of December 31, we had total working capital approximately of $160 million, reflecting $119.4 million of cash, cash equivalents and marketable securities and no debt. Turning now to our expectations for the first quarter and full year 2022. For the first quarter of 2022, we are projecting revenue of between a $165 million to $170 million, reflecting growth of between 35% and 39%. This range incorporates the impact that the Omicron variants had on member activity in January as well as the return to more expected levels in February and March. Our full year guidance reflects the clients and upsells that are expected to go live in Q2 and the small portion that are expected to go live at the beginning of Q3, on which collectively account for $40 million to $45 million of anticipated revenue in 2022. For adjusted EBITDA, we expect between $23.5 million to $24.5 million, along with a net loss of between $2.1 million to $1.4 million or between $0.02 and $0.01 loss per share on the basis of approximately $102 million fully diluted shares. I'll remind you that our net income projections do not contemplate any discrete income tax items including the income tax benefit related to equity compensation activity. To the extent that the related activity occurs, we will continue to benefit from those discrete tax items throughout 2022. For 2022, we project revenue to be between $730 million to $775 million reflecting growth in between 46% and 55% or 50% growth at the midpoint of our range. For adjusted EBITDA, we expect between 110 million to 122 million and for net income of between a loss of 1.4 million to income of 7 million or between a loss of $0.01 an income of seven cents per share on the basis of approximately 105 fully million fully diluted shares. At the midpoint of this guidance, we are expecting to see continued expansion of our margins in '22 with adjusted EBITDA margin on incremental revenue of more than 19%. I wanted to close by highlighting that we recently issued our first corporate social responsibility report, which is available now on the investor relations section of our website. We've seen a growing number of our public company clients referenced the Progyny benefit in their CSR ESG reporting because these companies have recognized that Progyny provides them with a tangible way of demonstrating their commitment to the principles of diversity, equity and inclusion in their workforce. Our benefit provides all populations with equal access to care, eliminating the discriminatory impact of traditional plan designs, while also delivering culturally competent care that is specific to the needs of diverse populations and achieving superior clinical outcomes. Let me now turn the call back over to Pete.

[Pete Anevski, CEO]

Thanks Mark. We believe the increase in focus on ESG among leading companies is providing us with additional momentum in our new sales efforts. We begin 2022 as I mentioned before in our strongest ever competitive position has granted choice and facility and family building benefits. And with the macro trends that have been fueling our rapid growth in tax and a business that's been built to achieve sustained long-term success, we look forward to providing you with further updates on our progress throughout the year. With that, operator, I'd like to open up for questions.

[Operator]

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And the first question is coming from Anne Samuel from JPMorgan. Your line is live.

[Anne Samuel, JPMorgan]

I was wondering, if maybe you could provide a little bit of color on what kind of utilization recovery is embedded within the full year guide? It seems like the first quarter is only about 70% of where you were expecting shake out, but you said the February has recovered back to normal levels. So, that feels a little low, just helping you provide a little more color there.

[Mark Livingston, CFO]

So, as far as the recovery goes, January really reflected what was happening with caseload and how people were generally seeing the impact of Omicron and its being relatively mild. So, we've seen the activity really come back pretty quickly in February and March. So, our guide for Q1 and for the full year sort of factors in everything that we're seeing, as we sit here now. As far as and I didn't quite catch your 70%, but I think it's you're asking sort of Q1 and how it relates to the full year. Just want to remind, generally the first quarter and the first half of the year tend to be a little bit less than the full year overall in terms of the percentage of revenue some sort of evenly spread. Just as a reminder, the new clients as they get up to speed typically have a higher proportion of initial consults in the earlier months as they were progressing along their member journey. So if you look so for example, the way that we modeled this all out in detail by client, as we do all of our expectations and projections, but we also do sanity checks and on what we are seeing. And so if you, for example, if you take 2021 and you look at the first quarter and you look at its relationship to the full year, now, if you add the $9 million that we've mentioned, that dropped off here in December, you're looking at a, you have to, it's a ratio of about 4.2:1. So, if you take our guidance for Q1 and you extend that out by that same ratio and then add the revenue for clients that have not yet launched here, that will be launching here in Q2 and a small number in early in Q3 of about $40 million to $45 million, that gets you pretty close to what our full year guidance.

[Anne Samuel, JPMorgan]

That's really helpful color. Thank you. And then, you noted in your remarks that there is some time sensitivity to futility. So, how should we be thinking about where these loss cycles are going? Do you expect to see some kind of catch up at any point?

[Pete Anevski, CEO]

Yes. Here's how I think about it, right? To the extent that anyone is deferring treatment, whether it's hesitation relative to the backdrop of the pandemic, whether it's the hesitation that we saw over the summer relative to what we believe, which was faster reopening, I think, and the impact of folks just deferring to sort of take advantage of getting out the house again. If you will go on vacation, et cetera. ART cycles, right. And so, to the extent that those are deferring and they do effectively come back on board, those that learn that they have a challenge with having a baby naturally and need fertility, but then have trepidations and a new cohort sort of ART cycles. And so, it catches up in the short-term relative to those that deferred at some level, and we never know exactly how many deferred and deferred definitely. But those that become aware of a challenge that they have that are newly aware, but then also have any trepidations are going to sort of defer. So, it sort of cycles overtime. So, it doesn't all come back all at once because everybody doesn't understand all at once that they even have a challenge. It's something that you learn. It's the reason why utilization happens all year long at different people at different points in time make a decision to have a baby, and then may learn, they had a challenge throughout the year.

[Anne Samuel, JPMorgan]

That makes sense. And if I could, just squeeze in one more, you've been seeing some really nice margin expansion on the gross margins recently. And I was just wondering how much more room is there for expansion and what might some of those drivers be there?

[Pete Anevski, CEO]

The expansion that will always be inherent in our business is primarily around the care management services, right? So, to the extent that they are embedded in cost of operations and to the extent that we continue to grow the business at the rate that we are growing it, you're going to see continued expansion and leverage off of those services. And then to the extent that there are opportunities in the future around the entire supply chain, if you will, what we deliver, whether it's on the medical or pharmacy side, as we continue to grow and scale, we are going to hopefully be able to continue advantage of that purchasing power that we have. And as we always do, we share a little bit with our clients and we keep a little bit, so I can't tell you how good that's going to be or sort of how much it's going to be. I can just tell you that based on where we're at in our growth cycle we believe that we'll be able to continue to expand those margins.

[Operator]

Okay. The next question is coming from Michael Cherny from Bank of America. Michael. Your line is live.

[Michael Cherny, Bank of America]

Pete, Mark, if I can dive a little bit more into the revenue growth guidance. Clearly, there is a lot of moving pieces you alluded to over the course of 2021. You also noted some good hindsight of visibility even into April. That being said, as you think about the guidance and especially the range of the guidance being very wide on the revenue side, what are some of the moving pieces you're looking for to get yourself comfortable with different areas low and mid-point, high-end guidance? And as you think through what you learned during COVID, is there another potential set of leading indicators that you think could be more important to understanding upside downside to guidance over time?

[Unidentified Company Representative]

So look, right now, we have really good visibility, obviously into what's happened already, so January in February and a pretty good view on March. We do have an early peek at say, at April but again, you have to be a little bit careful on extrapolating really big numbers. But again, we take all of that, into consideration is what drives our models. I think maybe giving you some color around how we view the guidance itself and the range that we put out there. So, on the high-end, that reflects what we're seeing now, and it reflects a normal level of utilization and mix, et cetera. And we, we obviously have a more sizeable guide, because the numbers overall are that much bigger. So that's obviously driving a big part of that when you look at the full year. So, when you look at the overall range though, it does factor in some level of perhaps less favorable mix, some slight changes in utilization, because it does vary from time to time, quarter to quarter. So maybe some slight unfavorable changes in those patterns. Possibly the impact of a variant that we don't know about right now, but it also factors in and I've already mentioned it that we have a little bit higher number of clients that are launching in Q2 and Q3 than we normally do. And it's just a factor of contracting in there, everybody's committed, it's just a factor of when they are choosing to launch and that represents about $40 million to $45 million. To the extent that they decide to delay that at some point any further, that's a risk that would effectively, hopefully be caught up within the range that we've put out there. So, those are some of the big pieces that that we're looking at as we considered that with.

[Michael Cherny, Bank of America]

Along those lines, you mentioned, understandably, the starting point or starting the year of more initial consults and visits. And I think you've said over the course of 2021, I think, revenue for ART cycle dropped fairy new to over the course of a year. Where are we looking for the turn? And what do you think are the most important parts of attract determine that number?

[Mark Livingston, CFO]

Yes, so I think you're looking at -- you're looking at mix that that impacted us in ways that was really abnormal for us. I know we talked about that certainly in the middle of the summer, as we saw sort of a pause in treatment progress, so when you have those initial -- and we only start with the initial console, which is comparatively lower revenue. If you pause your treatment at that point, the impact of that is overall revenue dropping or if you're in the midst of your treatment, it really that's it's similar pattern that we saw, there's a number of things that obviously affected December, but that was also something that we saw in December whether mix of revenue was a little bit slowed.

[Pete Anevski, CEO]

I think the other think to think of that is that as we continue to grow across the country, right, rates from earlier years sort of pre-COVID, right, where were the concentration of our members and our member experience, a utilization was on the East and West Coast, where he's you had the highest prices, as you continue to grow and dispersion of members engaged across the country grow, rates do vary. So, it's not necessarily that it's going to, as you describe it, turn and sort of get back to those low levels because it's all about mixed and averages and prices across the country. And so, it's not as simple as sort of only impacted by mix of utilization during COVID. But it's also the reality of a growing client base, a growing member base across the country, and down in places across the country that aren't primarily concentrated as they were in the early years, much more so on the East and West Coast, disproportionately, versus where we're at today.

[Operator]

Next we have Glen Santangelo from Jefferies. Glen, your line is live.

[Glen Santangelo, Jefferies]

I just want to follow up on the previous questions around the revenue guide, maybe in a couple different ways. And I apologize if I missed this, but I know you're expected to be at 4 million members. Do we know exactly when you'll be at that 4 million member, Mark? I seem to remember, I thought it was second quarter or middle of the year?

[Mark Livingston, CFO]

Yes. Second quarter, the majority of those that have not yet launched, will be launching in the second quarter. There's a few in Q3, but it's comparatively smaller.

[Glen Santangelo, Jefferies]

So I guess my question is, if you look at the membership growth sort of year-over-year, even if you use the 4 million members that mean your membership growth is a good chunk below where your revenue growth is kind of implying some uptick in utilization, and now where we're sitting in January maybe being a little bit behind in April, as we look to the midpoint of your '22 revenue guide. I think we're all trying to understand is, you said it sort of incorporates what you're seeing today. But are we -- do we need improvement from where utilization currently sits to ultimately get to the midpoint of that guidance? I think that's what we're all trying to understand.

[Pete Anevski, CEO]

The biggest driver of why your revenue growth is outpacing your member growth is your adoption of Rx. So Progyny Rx is a much bigger part of your existing client base that's live. And they're also part of the new client starts, if you will, from an upsell perspective in there as well, that's going to help drive the overall revenue number, these would be your remember growth. And you also got a look at number, your membership growth on average for the year, not just where we're exiting the year. But on average for the year versus where we started the year, we were at roughly 2.3 million and went up to 2.9 million. So it's really on average, and how much you're growing and how much you'll continue to grow. And remember, the last piece is that the existing client base just like it grew this year, whether it's going to grow at the same rate or not, we'll never know. But the existing client base is going to start the year with a number of members and eligible allies. And as they grow as companies, more and more members will be eligible for the benefits throughout the year. So you got to factor all those things in, which is what we do in our detailed models, when we put out the overall guidance.

[Mark Livingston, CFO]

But again, even at the high that basically assumes a normal level of utilization. So although January was somewhat affected by Omicron and February and March, we think really good activity there. We're not necessarily riding an extra, a little bit of extra goodness in February and March, through the balance of the year. It is based on what would be a normal level.

[Glen Santangelo, Jefferies]

And then maybe just a quick follow up on the expense side. I mean, look at the EBITDA guide, the adjusted EBITDA guide seems pretty decent. I was kind of curious. I wanted to ask about the stock-based comp. You talked about a fair amount in your prepared remarks. If I look at that '22 stock-based comp level of $110 million, I mean, if I'm comparing that correctly to 2021, that number's up almost 4x. And so, you mentioned that that stock award that you gave to everyone in the Company, I'm kind of curious, could you give us more color around that award? Did anything else changed in your comp plans and are you replacing any type of cash compensation with equity compensation? Any more details around that would be helpful. Thanks.

[Pete Anevski, CEO]

Yes. I'll answer the last part of your first. We're not replacing any level of cash comp with stock comp. You have to remember that, we're recently public as a result of being recently public, the significant amount of grants that were out there already were pre-IPO at a much lower level, when you do a broad-based grant, even though this shares relatives to shares outstanding, in our existing comp plan were small. When you grant them at a much higher stock price, and you do a black shield value. It's going to have a much bigger impact from a stock compensation perspective, which is why, we break that number out. And we give you the color around our results with and without stock compensation. So, we are not doing anything different. In fact, there is still a significant amount of remaining shares that we have available to grant that we didn't grant. And so we just did, what we felt were we are very judicious in how we do those grants. We did a level that we felt was important relative to the existing client base, shares they had remaining and shares that we put in place as sort of continue our retention. But, the jump-up is really a function of just the strike price at the time of grant, which was way higher than what we had prior to that in 2021 or any year, you look at where the majority of shares were issued, pre-IPO.

[Mark Livingston, CFO]

Yes. And we'll be filing our 10-K tomorrow. And obviously, the usual disclosures in and around this will be in there. So you will be able to very clearly see that step-up in black shield valuation that Pete talking about between what had been previously granted and outstanding versus this grant that we did. Well, it'll be for the year, but substantially in November.

[Operator]

Up next we have Sarah James from Barclays. Sarah, your lines is live.

[Sarah James, Barclays]

So you guys talked about '22 margins on incremental business being over 19%, which is a step down from the 22.4% in '21. Is that just conservatism or is there a different mix going on or like a capacity type of investment going on that would drive this step down?

[Pete Anevski, CEO]

No. Actually, I think the answer is actually fairly straightforward here. So in 2021, we do have a bit of a favorable comparison versus 2020. Remember, we had that deep drop in revenue in Q2 of '20 as the clinics were being close in the early days of the pandemic. And we've retained all of our staff during that period in order to one service to the members because they were still going through transition at that point. But also we hoped and it obviously came to pass that, activity would ramp back up really quickly. But that period alone, it was sort of enough to drive the few points that you are seeing between the favorable results here in '21 compared to 20 versus what we are now guiding to for 2022.

[Sarah James, Barclays]

And then how do you think about client size trending for the next few years, as you look at the companies in your pipeline and who you're talking to? You had a little bit of a step down in client size this year. Is that the way your pipe is going to work as the market matures or with this kind of like one-off?

[Pete Anevski, CEO]

I'm not sure that the step down that you're referring to. From a new client sales perspective, in '21 for 2022 launches, we've returned back to normal levels in terms of average client size in the lives that they represent versus the 2020 selling season, that launched in 2021, they were a lot smaller, because a lot of the larger companies poured their benefits that they were managing through the, their workforce, being remote workforce dramatically and so. So, we're choosing not to make many benefit decision changes. Based on what we can see right now in our pipeline, it looks more like it did for '21 selling season than it did in sort of the dip that we experienced in 2020.

[Operator]

The next question is coming from Stephanie Davis from SVB Leerink. Your line is live.

[Stephanie Davis, SVB Leerink]

You've kind of answered this prior in a prior answer, but I was hoping [indiscernible] more. What gave you the confidence to create your '22 guidance? Was that reflective of some cushion baked in? Or did you just find out about the RX attach rates more recently, so that was most of the driver of the upside?

[Pete Anevski, CEO]

I think Mark went through sort of all the different factors that went into our guidance that we put out there, both high and low end of the range and all the components, including the timing of new clients starts, beginning of the year versus the portion of those that are starting in Q2 and a little bit in Q3. It's really all of those things rolled up that give us plus obviously the current activity relative to member engagement that we're seeing already for, February and March, a little bit of visibility into April, et cetera that we're seeing that we use is predictive for what we should expect during the year. So really, those are all the factors, I'm not sure there's any other color we give you relative to our expectations, but just to tell you that it's based on sort of all those factors are all rolled up into what ends up being the guidance that we're comfortable putting out there.

[Mark Livingston, CFO]

And just based on the attach rate, when we get commitments from clients, we are getting it. We have, again, preliminary information about the size of the client, the number of ART cycles they want, but also whether or not they're going to they anticipate launching with the Progyny benefit. And so, we obviously want to get that under contract get the clients launched and to really see the activity around it. But that's not sort of to us anyway, that's sort of the attached rate isn't really very new information, I think we even commented at JPMorgan that we had an uptick in the take rate for this new cohort of clients that are going live.

[Stephanie Davis, SVB Leerink]

Yes, understood. I declined you to ask the kind of the guiding question like besides the legalization. How do I utilization and otherwise, missing a bit then just to the big uptick in Progyny Rx. Could you maybe walk us through what pushed so many folks through the finish line and kind of economics of bundling versus what we've seen historically?

[Pete Anevski, CEO]

Yes. I think we've talked about sort of in the past when people ask the question, how come everybody's in sign up for Rx right away? And the answer in the past was drive sort of why the adoption, both for new clients, but also for upsells is, now the other constituents within a company that make the decision to sign up with Progyny Rx versus their existing prescription benefits are sort of those folks, right. And so to the extent that more and more people both saw with sort of new sales, understand the better member experience and also the financial benefits of Progyny Rx, that's resonated and as resonated as we continue to have a larger portion of sales that are not now. So they've been introduced to these ideas in prior periods. And so when they buy and that contribution of new sales in the past sales year was bigger than it was the year before, which is usually bigger than it was a year before that et cetera. So that's a contributor. But overall, it's just more awareness and less friction in the sales process. The other thing I will tell you is that our CVS relationship, as a channel partner, we announced in the beginning of last year also helped with that relative to new sales adoption relative to Progyny Rx, but overall, it's understanding of a way better members feelings when you're managing the benefit on the medical and Rx side, under one umbrella because they are pretty integrated in terms of the solution.

[Operator]

Next question is coming from Dev Weerasuriya from Berenberg. Your line is live.

[Dev Weerasuriya, Berenberg]

I think we got some good color on utilization. I just want to circle around kind of the sales side of things. I think in the Q3 call that was mentioned that maybe portion of the 85 client adds, a portion of that could have been kind of delayed from 2020 into 2021. I know you mentioned it comes momentum [indiscernible], which is step up and cause a number of clients from the client as from 2020 to 2021. Do you expect kind of a similar step up in 2020? Any color around that will be helpful and I have a couple of follow-ups.

[Pete Anevski, CEO]

So no, I wouldn't -- certainly it's early in the sales year, so we don't know where we're going to end up. But all indicators are that the sales momentum that we experienced in '21 to continue to '22. When I say that, I mean, our goal was always been bad, more lives and logos than we added in the prior year, right. The increase in new sales one both in lives and logos in '21 versus '20 sales year was pretty pronounced and impacted by the fact that in 2020, as I mentioned before. Mostly large clients chose not to make any benefit changes, not just in facility, but in general, any benefit changes. And we want a lot of smaller clients and even the volume was less, because people were managing through and companies were managing through a remote workforce that they weren't at that time used to 2021 return to more normal levels. And so, our comments around sales momentum and what we're seeing so far is really around the goal that we've always stated, which is to sell more logos and lives than we had in the prior year and so I'd point to those comments.

[Operator]

Okay. That concludes today's Q&A of the conference call. Now, I'd like to turn the floor back to James Hart for closing remarks.

[James Hart, IR]

Thank you, John, and thank you everybody for joining us this afternoon. Please be sure to reach out to me, if you have any follow-up questions. Otherwise, we look seeing you at a couple of the upcoming conferences and then our first quarter earnings call in spring.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your liens at this time and have a wonderful day. Thank you for your participation.