Progyny Inc (PGNY) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Progyny Fourth Quarter 2020 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, Catherine, and good afternoon, everyone. Welcome to our fourth 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 the first quarter and full year 2021; the impact of COVID-19 on our business, clients, member activity and industry operations; our ability to acquire new clients and retain existing clients; our market opportunity, size and expectation of long-term growth; our corporate governance plans, business performance, industry outlook, financial outlook, strategy, future investments, plans and objectives; and other nonhistorical 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, net income as adjusted, net income per share as adjusted. 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 David.

Thank you, Jamie, and thank you, everyone, for joining us this afternoon. We're pleased to report that we had a strong fourth quarter, concluding another year of record performance, where we achieved our highest levels of revenue, profitability and operating cash flow. Mark will take you through the financials in greater detail in a few moments, but I'd like to begin with just a few of the highlights.

In the fourth quarter, revenue grew 54% over the year ago period, and we also surpassed $100 million in quarterly revenue for the first time in our history. For the full year, revenue grew 50%. We achieved this strong result despite the severe impact to our volumes in Q2 because of the pandemic.

Our gross margin in 2020 increased to 20.3%, demonstrating the significant efficiencies we realized as we continued to scale our operations. Adjusted EBITDA in 2020 increased 77% to $32.4 million, and we also generated a record $36 million in operating cash flow in 2020. And finally, during the fourth quarter our average member base increased sequentially from the third quarter by nearly 100,000 covered lives, confirming that the significant majority of our clients are successfully managing the impacts of COVID or, in a number of cases, are flourishing and continuing to add headcount.

The strength of these results achieved against the backdrop of an unprecedented global health crisis are due to a combination of factors, including: the essential and time-sensitive nature of fertility treatments along with the resilience of our members in their pursuit of care; the quality and diversity of our customer base; and the support that we and our provider network delivered to members who are facing new challenges created by the pandemic.

As a result of that support, one of our most significant accomplishments last year relates to the continued improvement in our member satisfaction rates. At Progyny, we've consistently enjoyed industry-leading Net Promoter Scores for both our fertility and pharmacy solutions, reflecting the significant investments we've made in providing our members with the education, guidance and emotional support they need to successfully navigate their fertility journeys.

Throughout the pandemic, we've recognized that our members have had an even greater need for resources given the heightened stresses and uncertainties due to COVID-19. In response, we took a number of measures to support our members, including training our PCAs on how to address member-specific COVID-related questions and concerns. We also produced a series of webinars where health care leaders provided information on timely subjects for our members, including the use of telehealth during their fertility journey, the importance of mental health and well-being during fertility treatment and the unique issues pertaining to maternal health in the black community.

By becoming an even more present resource for our members in 2020, our NPS score for fertility services increased to 79, its highest level ever. And we believe this result is as important to understanding our success as is any of our financial metrics.

We've previously discussed our high rates of client satisfaction and retention as well. In support of that objective, we are always looking at ways to deepen our relationships with clients, including by understanding the issues that are most relevant to them. To enhance these insights, we recently launched the Progyny partner advisory council. The response from our clients has been very enthusiastic with virtually all of the more than 2 dozen clients that we invited to join accepting our offer. These clients represent 14 different industries as well as a diverse cross-section of geographies and workforce size.

We believe this strong response reflects not only the value our clients see in their Progyny relationship, but also their willingness to partner with us in finding solutions to some of the other problems that benefits teams are confronting. We believe the advisory council will be extremely helpful as we explore ways of evolving and expanding our services in the future, which Pete will address shortly.

One of the themes we've been hearing from customers is the heightened importance for them to address diversity, equity and inclusion, or DEI, in their workplace. This is particularly impactful for Progyny given that our solution provides tangible ways for companies to demonstrate their commitment to DEI.

First, every Progyny member has equal access to care, regardless of their individual reasons for needing fertility treatment, whether it's because of a medical issue or because they are a member of the LGBTQ+ community or a single mother by choice. Second, every Progyny member receives personalized, culturally competent care from a highly trained PCA who is sensitive to and knowledgeable about the unique needs of a diverse population, including members of the BIPOC or LGBTQ+ communities.

And finally, our plan design eliminates the discriminatory impact of traditional plan designs. We accomplish this by giving doctors full access to all the treatments and procedures they may need as well as the flexibility to treat patients based on each one's unique situation, such as by covering genetic screening for monogenetic disorders like sickle cell that may be specific to certain populations. In fact, a leading doctor in our network said recently that Progyny's proprietary Smart Cycle has all but eliminated class and race bias because it ensures that all patients have equal access to the treatments they need.

As companies increasingly look for ways to distinguish themselves as leaders in both ESG and DEI, we believe this will become a further tailwind to our growth, given both the relevance and importance of our solution as well as our proven ability to help companies better manage their costs, while also providing a clear return on their investment through our superior outcomes, higher satisfaction and improved employee retention. Let me now turn the call over to Mark to walk you through the quarter. Mark?

Thank you, David, and good afternoon, everyone. I'll begin by walking you through our fourth quarter and full year 2020 results and then provide our expectations for 2021.

In the fourth quarter, revenue grew 54% to $100.3 million. As David mentioned, this was the first quarter where we exceeded $100 million in revenue. And to put that into perspective, our first $50 million quarter was only 1.5 years ago. For the full year, revenue of $344.9 million increased 50%.

Turning to the components of the top line. Medical revenue increased 40% in the fourth quarter to $74.7 million and increased 34% over the full year to $253.6 million. Our growth in medical revenue in both the quarter and the year were driven by our higher number of clients and covered lives. Though, as previously reported, our full year revenue was partially offset by lower utilization, most significantly for the second quarter when fertility clinics temporarily closed at the onset of the pandemic.

Pharmacy revenue increased 121% in the fourth quarter to $25.6 million. Over the full year, pharmacy revenue increased 128% to $91.3 million. The growth in pharmacy revenue was primarily driven by the increase in the number of clients who have the Rx benefit as compared to a year ago.

We continue to see more clients taking the Progyny Rx benefit each year. In the 2018 selling season, 68% of our newest clients took the integrated benefit. That increased to 75% in 2019 and then to 84% of the new clients that are launching this year. Of all the clients today, 73% now have Progyny Rx. While we are very pleased with the progression of pharmacy adoption over the past few years, there remains future upsell opportunity to more than 1/4 of the client base.

As of the end of the quarter, we had 135 clients representing an average of 2.3 million covered lives during the quarter. This compared to 87 clients at an average of 1.5 million covered lives in the fourth quarter last year, reflecting more than 50% growth in covered lives over the past year. Importantly, our growth in covered lives came both through client additions as well as organic growth within our existing client base, many of whom continue to expand their workforce in 2020.

Turning now to our utilization metrics. During the quarter, 5,719 ART cycles were performed, reflecting a 51% increase as compared to the fourth quarter of 2019. For the full year, ART cycles grew 40%. Though again, the growth rate for the year reflects that period of time when clinics temporarily stopped initiating new cycles.

Female utilization, which really drives our financial results given that the female partner undergoes the most significant aspects of fertility treatment, was 0.45% this quarter as compared to 0.44% a year ago. For the full year 2020, female utilization was 0.97%, which compared to 1.09% in 2019 and 1.02% in 2018.

The temporary disruption to our members' access to care at the start of the pandemic impacted the full year utilization rates. However, as I mentioned a moment ago, by Q4, our female utilization rate has returned to comparable levels versus the prior year.

This recovery reinforces both the essential nature of fertility treatments as well as its time sensitivity for most patients. As a reminder, utilization rates can vary due to a number of factors, including the timing of when new clients go live, the time of the year and the demographic mix of the newest clients.

Turning now to our margins. Gross profit increased 76% from the fourth quarter of 2019 to $20.7 million. As a result, our gross margin of 20.6% this quarter reflects an increase of 250 basis points from the fourth quarter last year. In addition to normal operating leverage in our care management services, part of the improvement in Q4 2020 was related to favorable IBNR true-ups normally done at year-end.

For the full year, gross profit increased 54% to $70.1 million for the same reasons that drove our revenue growth in the fourth quarter. Our gross margin of 20.3% in 2020 reflected an increase of 50 basis points from the 19.8% margin in 2019.

Turning now to our operating expenses. I'll begin by noting that we adopted ASU Topic 326 during the fourth quarter, which pertains to the accounting for credit losses and the allowance for doubtful accounts. We've provided a table in today's press release to give you a reconciliation by quarter of each line item that was affected as a result of ASU 326, which will allow you to confirm your models to our historical results.

Sales and marketing expense was 4.8% of revenue in the fourth quarter as compared to 5% in the fourth quarter a year ago. For the full year, sales and marketing was 4.4% of revenue, reflecting an 80 basis point improvement from 2019.

As a reminder, we realized a certain amount of savings this year by shifting our sales activity and open enrollment events from in-person to virtual. In addition, we continue to see significant operating leverage in our sales and marketing functions.

With our near 100% client retention rate and the persistent utilization that we see year-to-year within each client, we benefit from what is effectively a recurring revenue stream. With the majority of acquisition costs being incurred in the first year of client launches with Progyny and minor variable expense thereafter associated with this revenue stream, our long-term margins should continue to expand.

G&A costs were 14.7% of revenue this quarter as compared to 11.3% in the fourth quarter a year ago. This increase is primarily due to the resolution during the quarter of a long-standing arbitration with a particular vendor, which resulted in $6.1 million in settlement costs and legal fees. As a reminder, our G&A in 2020 has been reflecting the onetime step-up in costs that we incurred in connection with our first year as a public company. However, effective with the fourth quarter, we are now comparing quarters on a like-for-like basis, given that public company expenses are in both periods. As a result, with public company costs incurred in both periods, but excluding the costs related to this arbitration, G&A as a percentage of revenue in the fourth quarter of 2020 was 8.6%, reflecting the inherent nature of expanding margins on G&A as we grow our revenues.

For the full year, G&A was 13.5% of revenue as compared to 10.4% in 2019. Excluding the arbitration costs from both periods, G&A was 10.8% of revenue in 2020 or an increase of 100 basis points from 2019, reflecting the public company expenses that were incurred throughout 2020, but only for a portion of 2019.

Given our margin improvements across the business, adjusted EBITDA increased significantly in both the quarter and the year. In the fourth quarter, adjusted EBITDA more than tripled from $3.9 million a year ago to $11.9 million. Adjusted EBITDA margin of 11.8% in the fourth quarter reflected a 580 basis point expansion from the year ago period. For the full year, adjusted EBITDA grew 77% to $32.4 million, primarily reflecting our higher revenue and improved operating leverage across the business.

Adjusted EBITDA margin of 9.4% in 2020 reflected an increase of 150 basis points from 2019 despite the impact from the pandemic on our results. Adjusted EBITDA margin on incremental revenue in 2020 was 16.7% after giving effect to the $5.2 million step-up in incremental expenses related to our first full year as a public company.

We believe margin on incremental revenue is useful as a forward indicator for where the business is capable of moving. And its expansion this year highlights our expanding rate of margin capture on new revenue.

Net income was $39.1 million in the fourth quarter or $0.39 per share. This compared to a net loss of $4.4 million or $0.07 per share in the fourth quarter of 2019.

The improvement in net income was primarily due to 2 factors: First, given that we now have sufficient evidence that our deferred tax assets are realizable, we recorded a $38 million tax benefit in the fourth quarter of 2020 in connection with the release of our valuation allowance on deferred tax assets. And second, our 2019 results reflect the warrant valuation adjustment expense related to the convertible preferred stock warrants that existed prior to the IPO.

To ease comparability of the results between the periods, net income as adjusted to reflect the exclusion of the tax benefit in 2020 as well as the warrant valuation adjustment in 2019 and the settlement and legal costs in all periods was $7.2 million or $0.07 a share in the fourth quarter of 2020. This compared to $1.7 million or $0.02 per share in the year ago period.

The improvement in both net income as adjusted and net income per share as adjusted is due to the improved operating efficiencies across the business that I've previously discussed. In 2020, net income as adjusted was $17.8 million or $0.18 per share. This compared to $10.9 million or $0.12 per share in 2019.

Turning now to our balance sheet and cash flow. As of December 31, we had $109.3 million of cash and marketable securities, an increase of $4.3 million from our cash balance at September 30. In addition, as of December 31, we had working capital of approximately $112.4 million, an increase of $2 million from September 30, and we have no debt.

The increase in our cash position reflects positive quarterly operating cash flow of $6.5 million, which compares to $5.5 million in cash used by operating activities in the fourth quarter 2019. For the full year, cash provided by operations of $36.2 million in 2020 reflects a significant improvement from the $1.5 million in cash used by operations in 2019. The improvement in both the quarterly and full year cash flow was due primarily to our higher profitability as well as the timing of billing and collections and quarterly cash flows.

Turning now to our expectations for the first quarter and full year 2021. It has been over 2 quarters since clinics reopened with their COVID-19 safety protocols in place. And during that period, we have seen our member activity has been fairly consistent. Accordingly, our guidance assumes that member activity stays consistent with the level of activity we've been seeing since last summer.

For the first quarter of 2021, we are projecting revenue of between $117 million to $122 million, reflecting growth of between 44% and 51%. For adjusted EBITDA, we expect between $14 million to $15.5 million, along with net income of between $7.5 million to $9.4 million or between $0.07 and $0.09 earnings per share on the basis of approximately 101 million fully diluted shares.

For 2021, we project revenue to be between $520 million to $540 million, reflecting growth of between 51% and 57%. For adjusted EBITDA, we expect between $63 million to $68 million and for net income of between $30.1 to $37.4 million or between $0.29 and $0.36 earnings per share on the basis of approximately 103 million fully diluted shares. At the midpoint of this guidance, we are expecting to see continued expansion of our margins in 2021, with adjusted EBITDA margin on total revenue of 17.9%.

Let me now turn the call over to Pete. Pete?

Thanks, Mark, and good afternoon, everyone. At the midpoint of the 2021 guidance Mark just provided, you can see that we expect our top line growth rate to accelerate slightly this year as compared to the 50% growth we achieved in 2020. This reflects how our mission to help people have healthy, successful pregnancies is more relevant today than it has ever been, and how the need for employers to offer a better fertility solution continues to grow. As we think about 2021 and beyond, we believe Progyny is in its strongest-ever competitive position in what continues to be a largely underpenetrated market opportunity.

Starting first with the market, although it's not clear, if any, lasting societal changes may result from the pandemic, we remain confident that all of the macro trends that have been contributing to our growth remain intact, including the high and increasing rates of infertility as people continue to defer family building to later in life, the need for companies to recruit and retain talent and to demonstrate inclusiveness and equality in their workplace and the need for employers to use their health care dollars in the most efficient way possible and to do so while also optimizing employee health.

The fertility market today is large and growing at a double-digit rate. And as we look to capitalize on our opportunities, we feel extremely well positioned across every function of Progyny.

Last quarter, we discussed how certain prospects in our sales pipeline were so focused on their COVID response plans that they were unable to make any benefit changes in 2020 or were choosing to concentrate only on specific types of benefits targeted at COVID-related issues, such as enhanced mental health support. Despite having more of these deferred accounts, or not nows, in 2020 than we would typically expect to see, we still had a very strong selling season, adding 45 new accounts in 2021.

The 2021 selling season is just beginning, so it's premature at this stage to provide any detailed perspectives as to what we're seeing in the market. However, the initial anecdotal feedback we heard at this point from both the benefit consultants as well as certain prospects that we're engaging with is that benefit buyers are hopeful of getting back to some type of normal in 2021. We believe this demonstrates their eagerness to shift the focus from the crisis management they've been doing over the past year to looking at the benefits their workforce needs post COVID in '22 -- sorry, in 2022 and beyond.

While behavioral health is likely to remain a top focus for companies in 2021, the early feedback suggests that female-friendly, family-friendly benefits are also a significant priority. At this point, it's still too early to know what challenges we'll see, if any, as compared to the 2020 sales season, but we are expecting a highly engaged and active pipeline of new opportunities. And to address these opportunities, we're onboarding new sales executives, which we do every year at this time. We're deepening our relationships with the key benefit consultants to ensure that Progyny is well positioned whenever a consultant engages with an employer.

We've continued to produce content, demonstrating both our thought leadership and superiority of our solution. And although we expect that benefit conferences will be held virtually again this year, we believe that our sales team is well equipped to manage these virtual interactions with the same efficacy and impact as they would through any in-person activities.

Today, we have over 180 committed clients reflecting just a low single-digit share of our target market. And despite our rapid growth since launching our fertility benefit, we're still at the very early stage of penetrating our core market. As a result, we don't anticipate any market-based restraints on our growth for the foreseeable future. But given the strength of our balance sheet as well as our proven ability to generate very healthy levels of cash flow, you should expect that we'll continue to invest in our business and seek opportunities to expand our addressable market through new services.

The new partner advisory council that David described to you will give us insight into those potential areas where we can be most impactful to our clients. To that end, with a broad category of women's reproductive health, we could provide additional services that enhance our fertility benefit while also making the Progyny relationship with clients even more sticky than it already is.

For example, we believe there are a range of maternity-related services from preconception support to return-to-work programs that companies are seeking provided they can adequately measure the value of what they're getting, while also improving the shortcomings of certain existing solutions. In addition, as we look longer term, there may be other episodic disease categories we can pursue where similar to infertility, the outcomes vary significantly, not only by treatment, but also by the providers. And where patients need more support than what the traditional managed care companies are willing or able to provide. Of course, we'll be highly selective with respect to any service line expansions or strategic transactions, and we'll apply the same discipline that we use in managing all other aspects of the business.

Before we open up the call for your questions, I'll close by noting anything that it's been a year since the onset of COVID-19. And despite the significant disruptions it's caused to our society and across much of the economy, we believe Progyny is a stronger business today than we were a year ago.

The essential nature of fertility as a medical service was proven through our members' ongoing pursuit of treatment. The relevance of fertility benefits to employers was proven through our client retention as well as the success of our selling season. The importance of the collaborative relationship we have with the providers in our network was proven through our members' ability to return to care as quickly as possible. The superiority of our approach in fertility was proven through our increasing NPS scores. And lastly, the strength of our business model was proven through the quality of our results achieved during an unprecedented global health crisis.

With that, we would like to open up the call for your questions. Operator, can you please provide instructions?

(Operator Instructions) Your first question is coming from Ralph Giacobbe.

Great. You had set prior revenue guidance at, at least $525 million, the lower end of the range, obviously, a little bit below that. Maybe if you could just help, what are the factors there that caused you maybe to be a little bit more conservative on the lower end of the range?

Yes, I'll take that. So the estimates that we gave were prior to us seeing utilization patterns early in the year. As we talked about in the past, early utilization patterns are the most instructive relative to what we might expect for the year.

One thing to point out, even though it may not sound a lot, is earning -- year-end earnings are almost 2 weeks ahead of where they were last year. That's a little bit less experience than we get to see earlier in the year, so it really was the guidance that we thought was the most responsible based on the utilization that we're currently seeing.

The guesstimates that we have relative to the expectations that we talked about on our last earnings call were really around how many new lives we added and new clients that we added. But then there are variables that impact that a little bit, right, to the extent that any clients are going a little bit off cycle and adjust the expectations from those clients are part of that and again, utilization patterns. But it's pretty much in line with what we said relative to not being able to see what all those new clients that we added were actually going to do from a utilization perspective, even though we have some idea relative to their -- the information that we get from them.

Okay. All right. Fair enough. And then I wanted to hit on EBITDA because that number actually came in a little bit ahead of what we were modeling. Any details there on sort of maybe what's providing a little bit more of that boost to profitability, whether it's business mix or other factors within the cost line item or simply leverage?

Yes. So the EBITDA in Q4 was slightly better than what we expected. Mark talked about a little bit of a favorable true-up as it related to year-end true-ups, estimates for IBNR. And that was probably the biggest factor. Other than that, it was pretty much in line with what we expected.

Okay. And did you quantify what was that IBNR amount?

Small. It was around $1 million or something like that.

Your next question is coming from Michael Cherny.

If I could just pick ever so slightly, or I guess, maybe follow-up on Ralph's question regarding the guidance. You had talked about, if I recall, roughly 90% utilization in terms of baseline that was predicated on where that initial at least $525 million was.

What is baked into the guidance here? And along those lines, in the early days at least -- I know it is early, but are you seeing any geographic variability from -- based on different members in different parts of the country?

Yes. Well, I'll take the second question first. We're not seeing any variability that if I look at what we've been seeing, what I'll call, since the summer and throughout the end of the year and into the early weeks of this year as I look at the existing clients, we're not seeing any change relative to variability from what we're already seeing or what we might expect as the calendar year turns. So no real change there as it relates to depressed utilization, if you will, in any geographic area that might be coming from COVID or anything like that.

As it relates to the utilization levels, the 90% number we had talked about was as far back as when we reported on Q2 results and started talking about expectations for Q3. That inched up to more in the range of 95%, 96% when we reported our Q3 results.

And what we've talked about since then is we -- is a normal utilization level now that we have insight into. And unfortunately, we don't have any more insight into anybody that may still be waiting or concerned about COVID and not pursuing treatment. But the majority of people in our covered lives are. And so all we can talk to is sort of current utilization levels, which is what we're seeing and what we used to put out our guidance for this year.

That's certainly helpful. And then if I may just ask another one here. You talked about some of the range of maternity services that you could theoretically look to introduce. Is there any desire to have something that's either -- or the difference between organic versus inorganic?

And you noted some of the services that are currently out in the market right now. I guess where do you see the competition falling short? Or what could Progyny do better based on the strong relationships that you already have?

Yes. Mike, this is David. Look, I think as we talked about in the prepared remarks, there is -- there are certainly opportunities to help our customers address issues they're seeing across their employee base. And those relate to certain issues during the maternity journey and again, as I said in the prepared remarks, everything from preconception all the way through return to work.

As we assess those opportunities and work with our clients about the problems they're having and do the current or the existing solutions address those problems, we'll always go through -- and maybe this gets to your organic versus inorganic growth, we'll always go through the exercise of thinking about potential new solutions as whether we buy, build or partner. And we'll always look at kind of the most capital-efficient way to get into a new opportunity and a way to kind of do it biggest, best and fastest.

So -- and those opportunities are consistent with what we've talked about in the past. And we -- but without getting into more detail than kind of we need to now since this is still at the assessment stage, I would say that there are -- within that entire kind of continuum of a women's reproductive health journey, there are certainly issues with all the solutions that are in the marketplace. And we see opportunities to provide, in certain cases, a better set of services.

And when we have more specifics to tell you about, we will provide those. So again, we're still at the assessment stage right now, and we don't want to get ahead of ourselves and provide specifics until we're ready to announce something.

Your next question is coming from Stephanie Davis.

Congrats on a good quarter. Not to call a high 40s growth rate conservative, but I wanted to ask what consumptions are in your 1Q guidance, just in light of the year-over-year improvement you're seeing in female utilization and all the Medicare script data coming in very strong. Is there any cushion you're baking in because of COVID or anything like that, that we should think about?

There's not any cushion. Again, all I can tell you is it's based on what we're currently seeing right now through the first, let's call it, 6 weeks of the year. And it's the best information that we have. And then what we use is past history of experience utilizing that early data to project what we expect, not only for the quarter but really for sequential quarters out into the year.

We obviously layer into that expectations around timing of new client launches, et cetera, and there are a couple that are a little bit later in the year. But nonetheless, most of it is really related to utilization patterns.

So I would definitely not call it conservative. I would call it, as we all sort of put out guidance, our best view and most accurate view of what we expect.

And just adding on to that, I mean, we normally see in the first half of the year, we see revenues build through the year. So our first quarter is typically our lowest quarter, again, absent last year, which was affected by COVID. But if you go back over time, you'll see Q1 is lower Q2. So the first half of the year tends to be maybe 47.5% of the total for the year. So that's also what you're seeing when you're looking at Q1 guidance versus the rest of the year.

Yes. The upper end of the Q1 guidance range is in excess of 50% growth. So...

Yes.

All right. Understood. I'll do -- take my shot like everyone else. In your prepared remarks, you did talk about broadening the scope of the products you're offering a little bit, just given how fertility is really different during a pandemic than it is in a normal environment. Are there any femtech start-ups or adjacencies that caught your eye? Or is there any potential to expand your behavioral health offering as it becomes a much more stressful process?

Look, the best -- David sort of alluded to it before. The best thing I could tell you is 2020 was definitely a year of managing through the pandemic. 2021, in addition to sort of taking advantage of the opportunities that we have with what we have in the space that we're in now is a year of real focus around those adjacencies and opportunities, including looking at some of the femtech that's out there, looking at any strategic acquisitions we could do. But also looking at things we can grow organically, right?

And so for us, the best thing we can tell you is as the year progresses and as we make progress in assessing those areas, and when we're in a position to share more about what we think makes sense for us, we'll share it. But really no more color to add in that area. It's a bit premature for us to talk to anything beyond that, considering where we are in that assessment.

Your last question is coming from Glen Santangelo.

I just wanted to go back to some comments you made regarding the selling season. If I look back to the 3Q comments you made last quarter, you were suggesting at the time that client retention was near 100%, but you were starting to see clients buy more Smart Cycles, more clients sort of upgrade to the Progyny Rx offering.

Could you maybe give us some stats or anything, looking back to last year's selling season in terms of what the legacy clients were doing? Given I understand the limitations around adding new clients related to COVID, but what were your existing clients doing the last selling season?

Well, I would say this in general. The one thing we saw from our existing clients last selling season was no reduction in benefits. So they were not looking to skinny down their benefit in some effort to control costs. And the changes that we saw were -- if there were changes, were to make the benefit more robust.

And that could be -- take a number of forms. They may add Smart Cycles because they're starting to realize that if they had 2 Smart Cycles, a number of their members were capping out on their Smart Cycles and had not gotten a successful pregnancy. It could be adding Progyny Rx, if they didn't have it in the past because they really wanted the integrated program and understood the benefits of it. It could be adding egg freezing if they didn't have that.

So those are the types of changes we saw. We don't quantify how much of our growth comes from organic, which would be both upsells and the addition of new lives by our existing customers through hiring or acquisition and how much it comes from new sales. But in the past, a -- certainly, a non-insignificant amount of our growth has come from organic growth to existing customers. And that's a combination, again, of both their internal growth but also upsells.

And maybe when you look at the year-end 2020, any sort of updated statistics about what percentage of the employers you think are offering fertility benefits at this point, maybe on the large side and the small side? Maybe how that stat trended through 2020? And what you think could be a catalyst to really ramp the penetration there?

Yes. There's not great data on this, and we've talked about this in the past. There were certain studies that have been done by the benefit consulting community. The most recent of those studies were done at the beginning of 2020 or released at the beginning of 2020.

But the trend has been fairly clear that over the last several years, the percentage of large employers that provide fertility benefits and the level of benefits varies greatly. But the percentage of employers that provide fertility benefits has grown pretty steadily. A few years ago, it was around 25%. It's approaching probably 50% now.

And most of the studies that have surveyed large employers point to continued growth in the number of employers that are going to have the benefit. One study even said that by 2022, which is amazingly is only a year from now, that 2/3 of large employers will have fertility coverage. And looking a few years past that, it should be 75%.

So the trend is in the right direction, and you see that even in our own sales. We have typically had somewhere around 2/3 of our customers come to us having had some legacy coverage with their carrier. 1/3 never had any coverage at all. Last year was similar trends, but it was about 40%, had no coverage before. So that's very indicative that 40% of our customers, they've never had coverage before.

Consistent with that trend were every year, more and more employers are realizing that fertility benefits coverage isn't a nice to have, but really a have to have, a central piece of their fertility -- of their benefits package for lots of reasons: fairness to their female workforce, a desire to have more positive DEI initiatives, as we talked about in the prepared remarks. But again, this is a trend that we think has been well established over the past handful of years and will continue for the next handful of years.

We have no further questions from the lines at this time.

Okay. Thank you, operator.

Thank you so much, everyone, for joining us today. We'll look forward to speaking to you next quarter.

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.