Progyny Inc (PGNY) 2021 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Progyny Third Quarter 2021 Earnings Call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, James Hart. Sir, the floor is yours.

Thank you, Katherine, and good afternoon, everyone. Welcome to our third quarter conference call. With me today are David Schlanger, CEO of Progyny; Pete Anevski, President and COO; 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 fourth quarter and full year of 2021, including our expected utilization rates and mix; the impact of COVID-19, including variance on our business, clients, member activity and industry operations; our ability to acquire new clients and retain existing clients; our plans forward and the timing of leadership and Board changes; our market opportunity, size and expectation of long-term growth; our corporate governance plans, 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 statements 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 and adjusted EBITDA margin. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progeny.com.

I would now like to turn the call over to David.

Thank you, Jamie, and thank you, everyone, for joining us today. We are pleased to report that we had a solid third quarter with strong 24% revenue growth and 220 basis point gross margin expansion. These results reflect a continued improvement in utilization from the low point we saw during the early part of the quarter that has continued into Q4, and Pete will provide additional color on utilization shortly.

In a few minutes, Mark will walk you through the quarterly results in more detail, but I want to take a moment to talk about a few of the highlights. As you all know, by this point of the year, we've largely completed our annual sales and client renewal season. And I'm happy to report that we'll be entering 2022 positioned for another year of strong growth.

For the fifth year in a row, we've achieved close to a 100% client retention rate. We also had strong upsell success within our existing customer base, where 1/3 of our clients increased their benefit in some form or another for next year.

From a new sales perspective, and Pete will provide more detail shortly, 2021 has been the most successful selling season in our history, producing a record number of new clients and members, such that we expect to enter 2022 with 265 clients under contract representing an estimated 4 million covered lives, which is nearly a 50% increase in members from the beginning of 2021.

We believe this strong momentum in building our client base demonstrates that our market opportunities continue to be significant that we are in our strongest ever competitive position and that Progyny has become the provider of choice, an industry-leading fertility and family-building solution for the largest and most successful companies in the world.

Beyond the pure numbers of accounts that we've won and retained over the years, we believe the caliber of our clients also attest to our ongoing ability to earn the trust of the most discerning and prominent companies, companies who are increasingly turning to Progyny to manage an area of their employee benefit plans that uniquely addresses their commitment to diversity, equity and inclusion.

While we've been successful at adding leading brands as clients, we remain at a very early stage of penetrating our market opportunities, particularly among the largest companies in the U.S.

Before I turn the call over to Pete, the press release we issued today also announced some transitions in the leader team at Progyny. I wanted to provide you with my perspective on what these changes mean.

Summarize what was announced, as of January 1, I will become the Executive Chairman of Progyny. Dr. Beth Seidenberg, our President Board Chair, will transition to the role of Lead Independent Director. Pete will move into the role of CEO and join the Board; and Michael Sturmer, who has been our Chief Growth and Strategy Officer and was formerly SVP of Health Services at Livongo as well as Cigna's Chief Operating Officer for the New York, New Jersey Health Plan, will become Progyny's President, responsible for all sales, marketing, client services strategy and new product development.

Let me first say congratulations to Pete and Michael on their well-deserved new positions. I believe these changes represent a very natural progression in roles and responsibilities for Pete, Michael and me. And it also reflects many of the ways that we've already begun to collaborate and work together as the leaders of Progyny.

For anyone on the call who wasn't previously aware, Pete and I have worked together closely for 25 years and across multiple companies. When we joined Progyny 5 years ago, the company had just a handful of clients and was in the earliest stages of defining its solution.

Beyond defining that solution and developing its positioning and value proposition, there was a clear and urgent need to develop a culture at Progyny and to create the processes, discipline and infrastructure that would turn -- what was an interesting idea to both a viable, scalable business as well as a thriving enterprise with employees committed to our vision, mission and values. But even in those very early days, we saw the incredible opportunity in front of us to disrupt the traditional approach to managing the fertility benefit.

We could see how we would be able to provide employers with a more efficient use of their health care dollars in a high-cost episodic disease category where outcomes vary significantly and where patients needed more support in order to successfully navigate what is often a complex and difficult journey.

Through our consistently superior clinical outcomes and world-class service and support over the past 5 years, we have built a business that is producing significant and recurring value for all 3 central constituents in the health care ecosystem, the employers sponsoring the health plan, the patients undergoing the treatments and the providers who want to help people build their families.

Because of how unusual and competitively differentiated a health care business that delivers measurable and sustainable value to all of those audiences is, the initial 5 clients and 110,000 covered lives that we had, when Pete and I joined Progyny, will have increased by more than 50x and 35x, respectively, as we begin 2022.

I obviously couldn't be prouder of what we've accomplished over these past 5 years, given the many thousands of members who have achieved their family building dreams because of our help. In transitioning to Executive Chairman, with Pete taking over responsibility for the day-to-day management of the business, I can dedicate my focus to those areas where I can make the greatest impact to Progyny's ongoing growth and expansion.

By continuing to be -- beyond continuing to be a sounding Board for and partner to Pete, my efforts will be directed on overall corporate strategy and corporate development, including new markets, products and businesses as we seek to extend Progyny's position as the brand of choice in fertility and family-building benefits. This change will also give me the opportunity to spend more time with my family than I've previously been able to do in addition to having the flexibility to pursue certain other personal interests.

I also believe this is an opportune time to implement this transition, given that we are now concluding the most successful selling season in our history, and Pete, Michael and I have the necessary time to ensure there will be a seamless continuity in the day-to-day management of the business.

I look forward to continuing to work closely with Pete, Michael and the rest of the Progyny team as we chart the course for our continued strong growth, and I couldn't be more excited for what's to come.

Now let me turn the call over to Pete to discuss the success of the recent selling season in more detail.

Thanks, David. Let me begin by saying that I'm enormously grateful for the close collaborative partnership that David and I have. As we each transition into new roles in 2022, I know that we'll continue to work together in much the same way that we have throughout the past 5 years of rapid growth at Progyny.

I also want to congratulate Michael on his expanded role. Michael just led our sales team through its most successful selling season in Progyny's history. While Michael's substantial experience in leading operations, sales and strategy functions throughout his career, I believe he is ideally suited to take on this larger role as Progyny's President.

We still believe that we are in the very early stages of addressing our significant market opportunities, and I look forward to working with both David and Michael, as we capitalize on those opportunities to continue to grow the business. Given that our ability to win new clients and retain our existing clients are the single largest contributors to our future growth, I'll begin today with a recap of our most selling -- our most recent selling season, which is now largely complete.

When the year began, we told you about the earlier than normal commitments that we were seeing, particularly from those not-now accounts that we have been unable to make change to their benefits a year ago due to their need to focus on mitigating the effects of the pandemic to their workforce. While these early commitments provided us with a healthy start to the year, we obviously wanted to sustain that earn momentum throughout the remainder of the season.

We are pleased to report that we succeeded having received commitments for more than 85 new clients in total who represent an estimated 1.2 million new covered lives. This represents the most new business that we have won in any single sales season.

To put this in context, in this sales year, we added more clients and nearly as many covered lives as what we had in aggregate when we went public just 2 years ago. Our newest clients continue to represent a broad cross-section of over 20 different industries, including financial services, consumer packaged goods, energy professional services, health care, media, food and beverage, hospitality and manufacturing. We believe this further enhances the strength and diversity that already exists within our client base.

Although the average size of new clients last year was a bit smaller than our historical average, the average for this year's cohort is 14,000 covered lives, which is consistent with our results from the 2019 selling season. And while the average this year is 14,000, we continue to see a broad range in size spanning from companies with 1,000 covered lives up to those of more than 100,000.

We believe this further emphasizes the universal need for fertility as a benefit for any type of employer, regardless of either industry that they're in or the size of their operations.

Newest clients this year also continue to select robust coverage levels for their employees, a significant majority selected either 2 or 3 smart cycles, which is consistent with our historical averages. And while there were a number of similarities between this season and prior ones, there were some favorable differences as well.

We drove to the strongest adoption rate for Progyny Rx with 92% of our newest clients taking the pharmacy benefit. In addition, we also saw a higher percentage of new clients who are adding fertility coverage for the first time. This year, 48% of our new clients didn't have an existing fertility benefit, which compares to our historical average of approximately 1/3 and last year's rate of 40%. We believe this ongoing shift underscores the macro trend that's been revealed in previous industry research where the adoption of fertility benefits among large U.S. employers expect -- is expected to increase significantly over the next few years.

While winning new business is obviously critical, another contributor to our strong growth has been our success with client retention and upsells. We believe that retaining customers year after year and expanding the relationship with them over time, best demonstrates the sustained value we are providing to our clients, and our results in both areas this year were very strong.

Consistent with prior years, we achieved a near 100% client retention rate this year. And as strong as this result is, we're equally pleased to see that a number of our clients also chose to increase their benefit with us.

With respect to expansions and upsells, we have multiple pathways to grow our relationship with clients. First, we can sell -- we can upsell additional services such as Progyny Rx facility preservation. This year, for example, we continue to see meaningful uplift in the penetration of Rx within the existing base.

Second, we can sell an expansion making Progyny available to more lives at the client, such as those populations who weren't previously covered by the benefit or to any employees that may have been acquired through M&A by these clients. Third, the clients can add additional smart cycles. And this year, we saw a small but growing number of clients moved to an unlimited smart cycle benefit. We saw strong results across all 3 pathways this year, which we believe speaks to the strength of the offering as well as the satisfaction of our clients.

Before I turn the call over to Mark, I want to discuss our utilization this quarter. As discussed on our previous call back in August, as the third quarter began, we observed a small decline in employment volumes as compared to what we normally would have expected, which we attributed to a small percentage of members whose activity was inconsistent with historical patterns.

As of the time of the August call, we have already begun to see an improvement in utilization off this low point, and we're pleased to see that the improvement in utilization continued over the course of the quarter, although at a rate was somewhat slower than what was needed to reach the higher end of our top line guidance range.

Although the past activity of our members has proven to be a reliable indicator of what we should expect in the present, the utilization that we actually see each quarter ultimately reflects patients making decisions based on factors that are unique to them at that point in time.

Over the past 18 months, those decisions have been made against the backdrop of an ongoing global pandemic. Despite what has been a small impact to our utilization expectations overall, we're pleased that our services continued to prove its resiliency and that those impacts have been small relative to what others have been experienced in health care from a utilization perspective.

As we begin the fourth quarter, utilization has continued to improve versus our exit rate in Q3, giving us further confidence that the phenomenon observed this past someone was temporary.

With that, let me now turn the call over to Mark to discuss the quarter in more detail.

Thank you, Pete, and good afternoon, everyone. I'll begin with our results for the third quarter and then provide our expectations for the remainder of the year.

Revenue grew 24% over the third quarter last year to $122.3 million, driven primarily by the increase in clients in covered lives over the year ago period. Looking at the components of the top line, medical revenue grew 17% to $85.3 million, while pharmacy revenue increased 43% to $37 million.

We had 188 clients as of September 30, representing an average of 2.9 million covered lives during the quarter. This compared to 135 clients at an average of 2.2 million covered lives in the third quarter last year, which reflects a 29% growth in lives over the past year.

As has been the case in the past, a handful of the more than 85 new clients, Pete mentioned a moment ago, have chosen to launch their benefit ahead of the typical January for start date and are reflected in our 188 clients as of September 30. I'll remind you that these types of off-cycle launches tend to happen with smaller companies who have greater flexibility in rolling out a new benefit to their workforce on dates that don't coincide with the start of their plan years.

Turning now to our utilization metrics. There were 6,892 ART cycles performed during the third quarter, which is approximately 27% higher than the year ago period. For the reasons we discussed on last quarter's call, this reflects a slight decrease from the record number of ART cycles that were performed in the second quarter, though, as Pete mentioned a few moments ago, we continued to see a point in volumes improve over the course of the quarter.

Female utilization this quarter, which, as a reminder, is the component of utilization that corresponds most closely to our financial results was 0.46% as compared to 0.44% a year ago. While the utilization rate is comparable with what we achieved in the second quarter, it's important to note that treatment mix is always a contributing factor to revenue.

Utilization associated with consultations and diagnostic testing and procedures contribute a low revenue value as compared with more advanced procedures such as fertility preservation and IVF. Our utilization in the third quarter included a lower-than-usual proportion of fertility preservation in IVF treatments, reflecting the small subset members who didn't pursue those treatments during the third quarter.

Turning now to our margins and operating expenses. Gross profit increased 37% from the third quarter last year to $28.5 million, reflecting a 23.3% gross margin or an increase of 220 basis points from the year ago period. The increase is primarily due to the favorable impact of the efficiencies that we continue to realize across our care management service teams as well as the impacts of the regular contract renewals with our providers and the pharmacy program partner agreements that were executed earlier this year.

I'll remind you that our third quarter margins are typically higher than what we see in the fourth quarter. Because towards the end of the year, we are onboarding the new headcount that we need in order to successfully manage the significant step-up in our member base as our newest clients go live with their programs on January 1.

Sales and marketing expense was 3.6% of revenue in the third quarter, which was comparable to the year ago period and reflects our continued efficiencies in these functions even as we pursued a larger number of client prospects. G&A costs were 12.3% of revenue this quarter, reflecting a slight improvement from the year ago period, again, as we continue to realize efficiencies across our administrative functions while we grow the business.

Given the efficiency in our cost structure as our revenues have grown, adjusted EBITDA increased 64% in the quarter from $10 million a year ago to $16.5 million this quarter. Our adjusted EBITDA margin of 13.5% this quarter reflected an increase of 330 basis points from the year ago period and adjusted EBITDA margin on incremental revenue in the quarter was 27.5%.

Net income was $16.8 million in the third quarter or $0.17 per share. This compared to net income of $4.8 million or $0.05 per share in the year ago period. The higher income and EPS as compared to a year ago reflects the margin improvements I just described as well as a tax benefit of approximately $0.09 per share, primarily relating to the ongoing favorable impact of deductions associated with equity compensation activity.

Turning now to our cash flow and balance sheet. Operating cash generated during the quarter was $24.2 million, this compares to cash provided of $15.3 million in the year ago period. As expected, our cash flow this quarter reflects a normalization in working capital, which stemmed from the change in the timing of payments we received under the pharmacy partner arrangements we signed earlier this year. Cash flow also reflects ordinary timing items in both periods.

As of September 30, we had total working capital of approximately $150 million, reflecting $114 million in cash, cash equivalents and marketable securities, and we had no debt.

Turning now to our expectations for the fourth quarter and full year 2021. Pete described, although utilization has continued to improve since its earlier lows, the rate of improvement has been slightly less than what was implied in the top end of our original guidance range.

We are projecting fourth quarter revenue of between $133.9 million to $140.9 million, representing growth of between 34% and 41% over the prior year period. This reflects the continued improvement in utilization that we are seeing now. On a sequential basis, this guidance represents between 10% to 15% growth versus Q3.

For adjusted EBITDA in the fourth quarter, we expect between $16.8 million to $18.3 million along with net income of between $800,000 to $3.4 million or between $0.01 and $0.03 earnings per share on the basis of approximately 102 million fully diluted shares. And for the full year, we now expect revenue of $507 million to $514 million, reflecting growth of between 47% and 49% over the prior year period.

On that basis, we now expect adjusted EBITDA of between $69 million to $70.5 million and net income of between $51.5 million to $54.1 million or between $0.51 and $0.54 earnings per share based on approximately 101 million fully diluted shares.

As a reminder, our net income ranges for both the quarter and the year do not reflect estimates for discrete income taxes, including the income tax impact related to equity compensation activity. At the midpoint of this guidance, we expect to see the continued expansion of our margins in 2021 with adjusted EBITDA margin on incremental revenue of 22.6%. We believe that margin incremental revenue is useful as a forward indicator for where the business is capable of moving and it highlights our expanding rate of margin capture on new revenue.

Let me now turn the call back over to Pete for some closing remarks.

Thanks, Mark. Before we open up the call for your questions, I wanted to provide our thoughts on the remainder of this year and how that positions us for 2022.

With the guidance we've issued today, we're expecting our fourth quarter will be our largest ever in terms of revenue, underscoring our strong belief that all of the macro factors that have been driving our growth remain fully intact and that utilization continues to return to more normal levels.

As we begin to look into 2022, despite our successful selling season, there will always be some accounts who determined it wasn't the right time for them to take the benefit. And this selling season was no exception. This sets us up with a larger pipeline than what we had at this time last year, which positions us well to start next year's selling season with momentum. We continue to believe that we are at the very early stages of penetrating our core market.

Once our newest clients go live, we will still have just a low digit percentage of the 8,000 employers in our target market. We're also continuing to explore the possibility of broadening our portfolio of services or adding new markets where we believe it makes sense for us to expand. We expect that the significant majority of the new clients will go live with their benefits on January 1, 2022, and for the remainder to launch during the second quarter of 2022. At that point, we expect to have 265 clients representing an estimated 4 million covered lives.

Typically, the utilization that we see in the initial period following a new client's launch provides us with insight as to what that client's utilization could look like for the full year. As a result, we expect to be in a position to provide you with the revenue range for 2022 as well as profitability guidance when we report our year-end results. With the visibility we have into 2022 around new sales, client retention and upsells, we remain comfortable that revenue will grow by approximately 50% in 2022.

With that, we'd like to open up the call for your questions. Operator?

(Operator Instructions) Your first question is coming from Anne Samuel with JPMorgan.

I was wondering if you maybe you could give us a little bit of color on within the 50% revenue guidance for next year, what kind of utilization are you embedding within that? And could you achieve that even if you don't see any sequential improvement versus where you are now in utilization?

Yes. Relative to current utilization levels, it's assuming that continues. Other than that, we estimate what we expect based on our new client adds. But until those utilization levels actually occur early in the year, I can't really comment on that until it happens. Even though we use our best estimates based on our experience of clients by industry, I think we're in the best position to give you any more clarity around that in the year starts when we give the full year guidance when we report our year-end results.

Okay. And then you said that 1/3 of your clients increased the benefit. So I was wondering if maybe you could talk a little bit about same-store growth and how much of that 50% growth next year is coming from same-store growth?

The 1/3 of the clients that added some form of expanded benefit aren't all equal, right? So some of them had Progyny Rx, which is the biggest upsell opportunity for us. Some of them had fertility reservations. Some of them had simply surrogacy reimbursement or smaller sort of forms of expanded benefit that we don't sort of talk about in detail because they're nominal in terms of their impact.

I think the point we're trying to make about the 1/3 is simply how many of our clients continue to look at the benefit and improve it as an indication of satisfaction. The majority of the approximate 50% in terms of our view for next year right now comes from the new lives added. The small portion, but not insignificant comes, from the upsells. Again, until we provide guidance at year-end. Any more clarity around that, I think is probably premature.

Your next question is coming from Michael Cherny with Bank of America.

First, just 1 quick technical question and then 1 more on the business. First, just for the fourth quarter net income, maybe it's just my math, but probably a lot of trouble putting your EBITDA guidance, your net income guidance. Is there something funky going on in between those lines that we should be considering? And does that have any impact on cash flow?

Mark will take a look at that and get back to you if there's something there. Mike, and if there is, we'll publish something on the website.

Understood. And then just turning back to Anne's question relative to utilization, I guess you said that's continuing to improve. I know that this is obviously a commentary from last quarter, relative to what you would have expected to be or maybe where the guidance was before, what percentage of that right now? And are there any subsets either from what you're hearing from your customers, what you're hearing from your providers with your network as to -- for the ones that are getting back towards normal or already at 100% of normal? What caused them to come all the way back? And is it also part of the factor that the ones that coming back first are the ones that are the negative mix shift for you from a revenue perspective? I know there's a lot of questions, but a lot of themes I want to make sure I hit on.

Yes. The easiest way to think about the current utilization levels versus what we were seeing in the middle of the summer is -- is 2 components to utilization, which I think you just touched on. One is (inaudible) utilization overall. And second is the mix of what's being utilized.

What's coming back -- what continues to come back is the (inaudible) utilization. What's coming back a little stronger is the mix relative to full cycles being utilized more as a proportion of total medical services. It's consistent, I think, with our belief of what was going on early in the summer relative to just the utilization drop-off that was temporary from what we expected, which is people just made decisions to pause pursuing treatment. And as they're starting to pursue treatment again, as you might imagine, they're going to start with initial consults first and then go on to treatment. So that's sort of the high-level explanation as to how the utilization is returning.

Your next question is coming from Stephanie Davis with SVB Leerink.

Congratulations to the whole team for the transition in roles. Pete, now that you've been announced as the incoming CEO for about 30 minutes, I was hoping you could (inaudible) back with your initial goals for the new seat or maybe your top 3 priorities as the field of (inaudible) kind of rapidly expands?

I think we alluded to some of them at a high level. They're a combination of expanding our addressable markets in certain ways both with product and with markets themselves. They're also looking at new development opportunities, as David alluded to, that he will also be focused on as well as Michael.

And so at a high level, it's just creating structure and resources around exploring newer opportunities beyond the current opportunity, which, as we talked about, we still believe we're in the really first inning of.

So pulling on that a little bit more than when you did have clients that may be opting for a different competitor or said no, were there certain features that were seeking out that you would want to add to your solution to be more than trust pure-play fertility?

Yes. The not-nows are all materially just timing based on their own priorities of when they want to add the benefit. They were not not-nows because we lost them the competitors or they were not not-nows because our offering is somehow deficient. That said, we believe there's still things we can do to improve it, which when we're ready about -- ready to talk about, we will.

But right now, our not-nows where like they are in prior years, last year and prior years even pre-COVID, where they're simply just other priorities and when they're ready. And so it's normal activity in terms of not-nows.

And 1 quick follow-up, if I can sneak it in, just on the not-nows front. Did we see a pretty complete conversion of this group from last year? Or is there going to be a longer tail conversions to come over the coming years? So we should see some sustained heightened back in the day.

We saw like -- like we did in prior years, both the number of accounts and covered lives coming from not-nows grew very nicely this year, has grown each year for us. And our expectation is that there's no reason why that shouldn't continue.

Your next question is coming from Ralph Giacobbe with Citi.

Great. I guess last quarter, you also talked about 50% revenue growth for '22. At the time of midpoint of guidance, it was about $780 million. Is the 50% still holding for '22 off the lower revenue base, so around $765 million or is it still applied to the prior baseline?

Yes. I think the 50%, as we talked about last quarter was an approximate -- it's still an approximate for the reasons that I said. Until and when we see the actual utilization from new clients, we're not in a position to give any more precision. The delta, whether you do it off of the midpoint at Q3 or the current time, is really that significant relative to the overall growth. And if I were in a position or we were in a position as a company to provide more specific guidance now, we would. We're just not. And so really, that's why we continue to say approximately 50%. I think that's more instructive versus trying to be more precise at this point.

Okay. Fair enough. And then I just wanted to reconcile some of the commentary because you talked about close to 100% retention. But just looking at the numbers, you're adding 85 clients in 2022. You also said you're going to have 265 clients by 2Q '22. So the math there would just imply that 8 or so are rolling off, is that the right math we should be doing? Or you -- do you expect midyear adds so it's not sort of in (inaudible).

I think you might have missed one of the comments. A few small clients like in past years, where we sold them during the year have already gone live. And so part of the 85 overall are a handful of small clients that have already gone live and are in our numbers as of September 30.

But if you notice that the overall live didn't go up that much because, again, these are small clients, so not a big impact at all relative to revenue contribution or anything this year relative to the overall base.

Your next question is coming from Sarah James with Barclays.

This is Steve Brown on for Sarah. So if you could just unpack the new client adds. So historically, you had a Gen 1 start for new clients and you flagged more Q2 starts this quarter. Is that related to more of the return to office in COVID? Or should we think about that as the size and type of the employer you're targeting? And how should we think about like that shifting the seasonality of new client adds? Would that be -- could that be shifting it away from the historical Jan 1 starts into more of Q2?

The majority of dollars in lives are going live in Q1, mostly in January 1. There's a handful of clients that are going live in Q2 mostly because that's when their plan year starts. So they are in industries that don't have a calendar year plan year. So there's no sort of shift, if you will, of any kind relative to when clients go live. They still materially are going live, consistent with their plan year.

The client I talked about -- a few handful of small clients that already went live this year. They're the more -- they are the indicators of those that have gone live off of their normal plan year and just a little earlier, but there isn't a delay of any kind in terms of new client commitments and when they're going live.

Your next question is coming from Iris Long with Berenberg.

First, I wanted to go back to Pete's comment I think you mentioned that utilization was lower for IVF and fertility preservation in Q3. Can you talk about that dynamics a little bit? Are you seeing or do you expect the same trend to continue in Q4 and then maybe next year?

Yes. What I mentioned was the proportion of full IVF cycles versus overall medical treatments was a little lower than normal. That is already based on what we're seeing in October -- scheduled for October and November is already returning back to normal levels. And it's really the proportion that we saw that was lower over the summer is consistent with what we believe was going on overall, which is just a slight pause in pursuing treatment due to the fact that the pandemic is -- has been around back then 15 months or so, and people were just looking to basically maybe get (inaudible) , maybe on vacation, whatever, it was consistent with comments we were hearing from our providers in terms of what they were also seeing in their business.

Okay. Got it. So it sounds like it's just Q3 then?

Yes. So slightly lower proportion was Q3 is already returning in what we're seeing already for Q4. It's part of why our expectation around Q4 guidance has baked into it.

Okay. Perfect. And then my next question is on the new customers. I'm wondering if you can talk about the characteristics and maybe the client profile for your new 85 clients that you're adding? So are these clients that you're adding, are they smaller than your existing clients or maybe are they a similar size. and I'm wondering if you can talk about the dynamics that you're seeing, are these clients mostly from certain industries or, in general, like do you see higher demand for certain industries?

Yes. So a couple of things there. One, related to client size, the average size of new clients that we added in this year's selling season for next year are higher than last year but similar to what they've been in previous years. Last year, with pandemic as a backdrop, it impacted larger clients coming on board in a more significant way than the last year's selling season. This year is, if you will, back to normal from an average client size perspective.

Related to industries, they were across 20 industries, many of -- most of which are industries that we already had clients in. There is no disproportionate size in any industry from an account perspective, they were across the board and very positive as we continue to penetrate these industries, it becomes a network effect where more and more other companies in those industries who want to remain competitive and attract and retain employees in the future become easier and easier to sell into.

This concludes the Q&A portion for today's call. I'd now like to turn the floor back to James for closing remarks.

Thank you, Katherine. Thank you, everyone, for joining us today. Just to follow up on the question Mike Cherny asked. There is a table at the back of the press release that does a reconciliation to the guidance, Mike. Hasn't yet seen on table. So that addresses his question.

So if there are any other questions, please never hesitate to reach out to me. And otherwise, we look forward to speaking to you in February. Enjoy the rest of the year.

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