Progyny Inc (PGNY) 2025 Q4 法說會逐字稿

Good day and welcome to the Progyny, Inc., fourth-quarter earnings conference 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, [Paul]. Good afternoon, everyone. Welcome to our fourth-quarter conference call.

With me today are Pete Anevski, CEO of Progyny; 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 our comments and responses to your questions today reflect management's views as of today only and will include statements related to our financial outlook for both the first-quarter and full-year 2026; and the assumptions and drivers underlying such guidance; our anticipated number of clients in covered lives for 2026; the demand for our solutions; anticipated employment levels of our clients and the industries that we serve; our expected utilization rates and mix; the potential benefits of our solution; our ability to acquire new clients and retain and upsell existing clients; our market opportunity; and our business strategy, plans, goals and expectations concerning our market position, future operations, and other financial and operating information, which are forward-looking statements under the federal securities law.

Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business, as well as other important factors.

For a discussion of the material risks, uncertainties, assumptions and other important factors that could impact our actual results, please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website.

Any forward-looking statements that we make on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events.

During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin on incremental revenue.

More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, are included in the press release, which is available at investors.progyny.com.

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

Thank you, Jamie. Thanks, everyone, for joining us this afternoon.

We're pleased to report that 2025 was an exceptionally strong year for Progyny, where we achieved record-highs in revenue and adjusted EBITDA, with both metrics increasing double digits over 2024. We also generated a record $210 million in operating cash flow, an increase of 17% over 2024.

We're pleased at the strong finish to 2025, completing the fourth consecutive quarter, where both revenue and adjusted EBITDA exceeded our expectations.

Our $1.29 billion in revenue and $222 million in adjusted EBITDA in 2025 was nearly $90 million and $28 million, respectively, above the midpoint of our original guidance range for the year.

Additionally, the operational execution we achieved this past year sets us up for continued momentum in 2026.

As always, this starts with our focus on member and client satisfaction. This constant focus, along with the value we deliver to our plan sponsors, has, once again, yielded a near 100% retention of our clients, including all of our largest employers.

Progyny's value proposition entails total program management in all the areas that are critical to the health of our members, as well as to the employers that provide their benefits. This includes execution across member satisfaction; clinical quality and outcomes; and overall cost management.

We've been able to hold costs and trends far below what employers have experienced in healthcare over the last several years, even against the backdrop of record medical cost inflation in the US over that same period.

For quality and outcomes, we, once again, led the industry in clinical results, translating into successful family building, healthier pregnancies, and better support for menopause symptoms. Those outcomes also translate into the elimination of unnecessary treatments, reducing the rate of high-risk pregnancies, eliminating waste with fewer medication dispensed, and fewer NICU events.

These better outcomes not only lead to better health for our members but, equally important, lower cost for our employers. This is enabled by our plan design and overall program management success, built off of our unparalleled partnership with our network clinics and supported by our growth and industry-leading scale.

In fact, when you put all these aspects together across member satisfaction; critical outcomes; and cost and [plan] control, even in the face of challenging economic pressures, employers and members continue to turn to Progyny for solutions for their family-building and women's health benefit needs.

It also contributed to expanding relationships with many of our clients, with 30% of our base expanding their benefits with Progyny for 2026 through upsells and service enhancements. With these expansions, more than 2.7 million members will now have access to one or more of our newest services in pregnancy post-partum and menopause in 2026.

Lastly, our growth has also enabled a further diversification of our base, both in terms of client and industry concentration. With the addition of our newest cohort of clients and lives, we are also entering 2026 with no single client accounting for more than a single-digit percent of revenue and no industry comprising more than 15% of lives.

To that, I'd also add that our largest industry, healthcare, has proven to be amongst the most highly resilient to the macro uncertainties over the past five years.

In short, we're entering 2026 with considerable momentum. This momentum and general broad acknowledgment for the very real need of family-building and women's health services remains stronger than ever.

While our selling season is only just getting underway, we're pleased with where we're starting off, with both closed deals and overall pipeline, including the size and quality of the opportunities from last season that are carrying over to this year.

While we expect the self-insured market to continue to comprise the significant majority of new lives to be added in this upcoming sales season, we are excited about our opportunities to broaden our target market by making our industry-leading services available to smaller employers, who previously have not had access to this type of benefit.

When we launched our solution a decade ago, we focused exclusively on large self-insured employers. Over time, we expanded that to include universities and school systems, then labor populations and government, as those were compelling additions to our TAM.

In that same vein, we now see a highly compelling opportunity to profitably bring our solution to the 50 million lives in the US under fully insured plans.

Progyny Select is our solution to address the needs of the smaller employer, who is more sensitive to variability of costs and prefers a model that minimizes their financial risk.

Because Progyny has access to the most comprehensive experience data for employers of all sizes, we believe we're exceptionally well positioned to deliver what this market needs but has never had access to: a fixed premium product that gives employers the cost predictability they need by becoming part of a larger pool, while also allowing their employees access to the comprehensive coverage and support that the self-insured market has long enjoyed.

We already have the operational infrastructure in place to go to market for efficient distribution through brokers and other third-party distribution partners, as well as by structuring the program in a way that provides real benefit, while containing its risk through simple structures like capped benefits; and removing options for opt-out at the individual member level.

An additional mitigator is that the premium applies to the full population covered under the employer's plan.

As 2026 will be our first year in market with Select, we're anticipating any contribution to our financial results until 2027. We aren't anticipating any.

Hopefully, my remarks today have helped you understand why we're pleased with our performance in 2025.

With our reputation in market earned over a decade as a premier solution for family-building and women's health driving the best critical outcomes, member experience, and total program management and cost containment for our clients; with the investments we've been making and we'll continue to make across our products, both in the US and around the world, to enhance our platform; and with our use of technology, including AI, to augment our capabilities to create a better member experience and provide even better service to our clients, while driving even more efficiencies, we believe we couldn't be in a better position, as we begin 2026, to continue our growth into this year and beyond.

With that, I'll turn the call over to Mark.

Thank you, Pete. Good afternoon, everyone.

Based on the positive feedback we received, following the last quarter's call, we're continuing with the format we introduced in November.

The 8-K we filed this evening includes a set of summary slides providing highlights on the quarter and illustrating some of the longer-term trends that we believe are important in understanding the health and direction of the business.

Rather than repeating what's addressed in that material, I'll use my time today to focus on the key take-aways coming out of the quarter, particularly with respect to the lasting trends that are impacting how we think about 2026 and beyond.

First, we continue to see good revenue growth, overall, 7% on an as-reported basis in the quarter; or 21%, when excluding the impact of a large former client in the fourth quarter of 2024.

As a reminder, the transition of care agreement pertaining to this large client ended as of June 30, 2025, so our results for the fourth quarter and the second half of 2025 don't include any contribution from this client.

For the full year, revenue grew 10% on an as-reported basis; or 20% when excluding the impact of the former client in both periods.

Second, member engagement, both in terms of utilization, as well as consumption of ART Cycles per unique utilizer, remain healthy. Overall member activity pace favorably versus what was assumed in our guidance.

Accordingly, fourth-quarter revenue exceeded the top end of our range by nearly $11 million.

As Pete noted earlier, our results have exceeded our expectations throughout the past year, reflecting how members have continued to prioritize their pursuit of the care they need in order to realize their family-building and overall health goals.

Third, we continue to achieve healthy profitability and overall margin expansion in both the quarter and for the full year. The nearly 200 basis points expansion in full-year gross margin versus 2024 reflects both the efficiencies we continue to realize in care management and service delivery, as well as the leverage we're creating with third-party partners through our economies of scale. Both dynamics have allowed us to continue delivering total cost containment for our clients.

Going a bit deeper on what Pete described earlier, at the recent JP Morgan Conference, we highlighted how US employers have seen a 27% compounded increase in their overall medical costs since 2022, driven by inflation and high-cost disease categories. That 27% represents a greater than 5x differential versus the compounded change in Progyny rates over that same time period.

We're extremely proud of this accomplishment, as it provides us with yet another way of differentiating our solution, particularly against the traditional health plans.

We also achieved a modest increase in our adjusted EBITDA margins in both the quarter and the year, even as we've continued to invest to expand our product platform and lay the foundation for future growth. We're pleased that the model we've built provides us with this type of flexibility.

Because of those investments, our fourth-quarter CapEx was approximately $5.5 million, reflecting a $3.5 million increase over the prior year period. For the year, CapEx was $18.4 million, as compared to $5.4 million in 2024.

Fourth, through our disciplined prudent management of the business, we continue to achieve a high conversion rate of adjusted EBITDA to cash, which gives us the flexibility to both invest in the business, while also returning value to our shareholders.

For the third consecutive quarter, we generated more than $50 million in operating cash flow. This contributed to a record $210 million in operating cash flow in 2025, a $31 million increase over fiscal 2024.

As of December 31, we had total working capital of approximately $350 million, which includes $310 million in cash, cash equivalents, and marketable securities.

There are no borrowings against our $200 million revolving credit facility and no debt of any kind. We have no planned use for that facility, at this time.

During the quarter, we repurchased more than 3.3 million shares for nearly $84 million under our most recent share repurchase program, which began in November and provides us with up to $200 million, overall. To date, including the activity that has taken place since January 1, we have now repurchased approximately 6.5 million shares, in total, with more than $40 million remaining available under the authorization.

Before discussing our outlook for the year ahead, I'd like to highlight a couple of items that will be helpful to you in understanding our expectations for 2026:

First, as outlined in our guidance assumptions, we are expecting 7.2 million covered lives in 2026. This is lower than what we had originally estimated due to a net reduction in lives in the latest counts we've received.

We rely on our clients to provide member counts throughout the year, especially following open enrollment. These updates are typically driven by hiring, acquisitions, and dispositions but also include true-ups to the previously submitted figures.

When looking at the client-level detail of these updates, none of these coincided with the announcements of any workforce reduction, leading us to believe that these are more likely to be administrative-type updates.

As we've said previously, our guidance for the coming year is based off the actual utilization that we were seeing, as of the start of this year; and doesn't rely on total population counts. As a result, we aren't seeing or expecting a negative impact to the total number of utilizers for this year, as these updates came principally from clients, who are at lower than average utilization rates.

Second, as previously disclosed, Michael Sturmer departed his role as Progyny's President at the end of 2025. His departure accelerated the vesting of certain previously issued equity awards that were otherwise duer to vest throughout 2026. This resulted in an incremental $7.7 million in stock-based compensation expense to our fourth-quarter and full-year P&L. This accelerated expense was not contemplated at the time we issued our guidance for stock compensation or net income in November.

As indicated in our January press release ahead of the JP Morgan Conference but for the impacts of this stock compensation acceleration, our fourth-quarter results for net income and earnings per diluted share would have also exceeded the high end of our guidance ranges.

Turning, now, to our expectations for 2026:

With the first quarter well underway, we've continued to see that member engagement has been healthy, including that from our newest cohort that launched in Q1.

Although the unexpected variability we previously experienced hasn't recurred since 2024, the assumptions we're making today, particularly at the low end of the ranges, reflect the potential that further variability in activity in treatments could occur.

To be clear, this is the same approach we've been following for more than a year, when setting our guidance ranges.

The table at the back of today's press release also outlines our assumptions at both ends of the ranges for member engagement.

In terms of utilization, the low end of the range assumes 1.04%, which is at the lower end of our historical ranges, while the high is closer to the midpoint of that range.

In terms of consumption, we're assuming ART Cycles per unique utilizer for the first quarter to be at [0.48] at the low end of the range and [0.49] at the high, which is a jumping-off point that's lower than what we've seen over the past three years.

For the year, consumption at the midpoint is assumed to be consistent with that we've seen over the last two years, which, itself, is at the low end of the multiyear average.

On the basis of these assumptions, we're projecting revenue of between $1.355 billion to $1.405 billion, reflecting growth of between 5.1% to 9%. If we exclude the $48.5 million of revenue from the client who is under a transition of care agreement for the first half of 2025, our full-year revenue growth is projected to be between 9.3% to 13.3%.

With respect to profitability, I'll highlight that, as previously committed, we expect to see a significant reduction in our stock-based compensation expense in 2026, down approximately 35% from 2025, as prior large brands have now fully vested. We now expect stock-based compensation to be approximately 6% of 2026 revenue at the midpoint, as compared to the 10%-plus that it was in 2025.

We expect $224 million to $239 million in full-year adjusted EBITDA, with net income of between $95.4 million to $106.1 million. This equates to $1.19 and $1.22 in earnings per diluted share; and $1.83 and $1.95 of adjusted EPS on the basis of approximately 87 million fully diluted shares.

Please note that our assumptions do not consider the impacts of any further activity under the repurchase program beyond what has already occurred, given the unpredictability and the timing of any additional activity.

As it relates to the first quarter, we expect between $319 million to $332 million in first-quarter revenue, reflecting growth of negative 1.6% to positive 2.5%. If we exclude the $31.3 million in revenue from the client under a transition agreement in the year-ago quarter, our first quarter guidance reflects growth of 9% to 13.4%.

The supplemental materials we published today also include a chart showing the distribution of full-year revenue by quarter for the past three years, revealing what we typically see: 23% to 24% of our full-year revenue in the first quarter of the year. Our first-quarter guidance for 2026 is likewise consistent with that.

We felt it was worth highlighting this dynamic, given that 2025, on a reported basis, unfolded somewhat differently due to the additional contribution in the first half of the year from the transition client. As that contribution does not reoccur, we would expect to revert to the more customary cadence at the start of the year.

On profitability, we expect between $51 million to $55 million in adjusted EBITDA in the quarter, along with net income of between $20.8 million to $23.7 million. This equates to $0.24 and $0.27 of earnings per diluted share or $0.42 and $0.45 of adjusted EPS on the basis of 87 million fully diluted shares.

With that, we'd like to now open the call for questions. Operator, can you please provide the instructions?

(Operator Instructions)

Jailendra Singh, Truist Securities.

I just want to go back to your explanation on this change in membership outlook for 2026. Were those mismatches you called out just at new clients or at existing clients?

The 400,000 delta seems like a pretty big number to be explained by just administrative issues. Does that mean that 2025 membership figure might have been overstated, as well?

Just help us clarify that.

Yeah. It does relate to the previously existing clients. It's not related to the new cohort.

Again, as I said in the prepared comments, we do receive updates throughout the year. That's the basis upon which we provide numbers for lives throughout the year.

At the end of the year, it tends to be more significant in changes, given enrollment changes, et cetera. But this happened to be a bit more significant, in terms of these administrative changes, than we've seen in prior years. Although, again, as we get bigger proportionately, you'd expect those numbers to be out there.

The truth and the reality is that we're reliant on clients and their processes to give us these numbers. They're not perfect.

And so, again, I think what I tried to stress in the prepared comments, which is important is, our models, our guidance, and how we run the business isn't driven by those population counts. It's on the actual utilization that we're seeing from those clients.

Got it. And then, a quick follow-up around Progyny Rx. There has been some confusion among the investor community about the Progyny Rx model and economics, given all the developments around a federal bill which requires 100% rebate pass-through in 2028 and, also, some fertility medications at a much lower cash pay price on TrumpRx.

Maybe talk about just the value of Progyny Rx. Have you seen any employers bringing this up, in terms of what's happening in the marketplace? Do you see any pushback from employers? Do you see that model evolving in any way that economics don't change much for you but you still check the box on what your employees are looking for?

Sure. We haven't seen any pushback, as you're describing it; or employers raising concerns about what's out there.

Our model, I'll remind everybody, includes rebates at point of sale. We've been doing that since we introduced our pharmacy product back in, I think, 2018, it was.

Whether or not the model itself, in terms of how we charge fees changes or not, remains to be seen. But I think the net economics, based on the value that we deliver, both on the medical side, as well as the pharmacy side; and the overall integrated program and how that's key to drive the member experience, the outcomes, and that value is important.

And so I don't expect the net economics to change but the structure of it is certainly possible in the future.

Brian Tanquilut, Jefferies.

Maybe I'll hit on Progyny Select first. How do we think about the strategy on pricing Progyny Select and how you're thinking through the risk; or whether or not there is risk associated with that strategy, in terms of undertaking a PMPM model?

Any other KPIs that you can share with us, in terms of how you're thinking about, like, utilization per member base or anything along those lines?

Sure. Sure. I'll start with the fact that, although in our client counts and when we talk about them, we talk about employers 1,000 lives or more, we have a number of clients -- and the overall lives are included the smaller clients.

We have many, many smaller clients that we use to underwrite the product. That experience is what we use as a starting point, relative to pricing the product.

As you might imagine, we manage our book of business on behalf of our clients that are [ASO] clients and self-insured clients. We could do the same thing for ourselves. That's how we priced it.

We put in guardrails around some of that risk to ensure that there isn't significant variability, in terms of utilization versus our current book of business. That's part of the structure of the product.

Some of those guardrails include the offering and not being able to be selected at the individual level and so no opt-outs being allowed; but, that, when even the smaller employer clients take the benefit, they take it for all of their lives.

And then, overall, there are other types of caps and guardrails, including caps for high-cost claimants, et cetera, that are within the product.

But, overall, the way we see it is, as the pool grows, right, it's going to perform no different than what we see with the long tail of smaller clients that we have today that are not inconsistent with our overall utilization.

Once the pool is big enough, our expectation is that there shouldn't be a lot of variability. Therefore, we priced it that way.

We did obviously put in a risk premium. But we priced that way, off of that experience.

Okay. That makes sense. And then, my follow-up, just as I think about the guidance and the commentary you made in Q1, just to clarify, first, should we think of this as there's ample conservatism, just because we're early in the year? Or would you pointing to, like, the low end to midpoint of historical ranges? Is that just basically factoring in what you're seeing, quarter to date?

And then, maybe last part here in this question is, when I think of the margin compression that's implied in the guide, what are the factors there, other than the revenue outlook being what it is?

Yeah. Our guide is always based on the activity that we're seeing in any period.

For the benefit of the first quarter because our call is a little bit later, we do get the benefit of being able to see a little bit more data, as we set our guidance. Although, I'll also add to that that new clients, who are just coming on board, they are ramping up. And so there's good news there and maybe a little bit less data, as you're looking at the newer clients.

But it is all based on what we're seeing. I'll start with that.

And then, as far as margin compression goes, we typically see, in the first quarter, as we've ramped up the entire business, there is a step-up, typically.

Again, our revenue for this quarter is only just a little bit north of 23% for the full year. We are prepared to handle the business throughout the year. There's a little bit of compression there.

I think there's also some timing around the platform investments and the product expansions that we talked about. That ramped up through the course of the first part of last year. And so it wasn't as much a contributor to expense in Q1 of '25.

Michael Cherny, Leerink.

Maybe to build on Brian's a little bit, if my math is correct, versus the starting point of the midpoint for your initial '25 guidance, you ended up coming in a little over 7% better than the initial midpoint on revenue, a little more than 14% on the initial midpoint on EBITDA.

I fully respect the formulation you have on guidance and what you're seeing now. But as you think through what's embedded in the guidance, in the view, how do you think about the swing factors that get you to the bottom end of the range versus the top end of the range?

And then, has anything changed, relative to the visibility that you think you have into those different metrics?

When you think about -- and again, this has been the similar philosophy we've been using now for a good several quarters.

What we're seeing and the data that we have to make our predictions for the quarter and the year, I would say our -- and as you have seen -- are closer to the higher end of the range than the lower.

The low factors in incremental variability of various sorts, whether it's lower number of cycles per utilizer, lowered utilization rate, et cetera. Although, at this stage, that's not what we're seeing.

I think, as far as factors and drivers that can influence the year as we go forward so faster pace of treatments; improved mix of treatments, in terms of revenue per overall cycle; improved utilization, as we go through the year, like, those are all many of the key factors.

We don't include revenue from any sales that we make that we have not already had full commitments to. Largely, all of the clients that we've sold have already launched.

And so, to the extent that we have midyear starts or third-quarter starts or fourth-quarter starts, like, those are all potential contributors, as they have been in any year.

Helpful, Mark. If I could just touch on one other? How should we think about the contribution in the year from some of the other maternal health services, that menopause, et cetera? Is it material at this point in time? Or is this still something that's more a value-add relationship builder?

Just curious on the financial impact.

Yeah. It's growing but it's not yet material. It's definitely a value-add, as you described it, relative to the overall services that we performed with our clients.

When it becomes material enough to break it out, we will. But it's growing.

Scott Schoenhaus, KeyBanc.

(inaudible) my counterparts here. We know that you've reduced your expectations or your clients have reduced your expectations on lives. But you said that those were all from lower-yielding lives. The implied utilization is actually better for this year, based on the revenue ranges.

The revenue ranges in first quarter and the implied utilization there would suggest to me that, from this new cohort, which we backed into, is high-utilizing cohort, so far.

Maybe, as you do IVF, you have your initial consult, the earliest you could ever do that would be January. (inaudible) take a month to do -- to get on your -- depending on your cycle to get on these fertility medications and then, another month, earliest, to do the retrieval.

My question here is that we've obviously seen this new home cohort do the initial consults pretty nicely here. Should we assume that there's a nice tailwind here coming through the next several months of potential retrievals, based on what you're seeing today in this new cohort of high-utilizing clients?

Yeah. I think, look, the way that our guidance is laid out, especially, again, you can just see it in the revenue mix, Q1 being less than a quarter of the year, implied there is a step-up, as we go through the year.

We gave you a range around ART Cycles per female utilizer. If you try to do the math of what's the balance of the year to get to the annual numbers that we've also provided, it does imply that there's step-up that we would normally see throughout the year.

Again, it's been a good start to the year. It would seem that the phasing and profiling of it is as we would normally expect.

Great. And then, Pete, this is a follow-up for you. You had some nice -- I don't think you've ever given us early selling season commentary this early. But could we contemplate some of these wins coming in throughout the end of this year, like we experienced, I don't know, was it two or three years ago? Are these large employers?

Can you give us more color on that commentary? I thought it was interesting.

Sure. They're not large employers, in terms of an individual employer. But we've had a good number of wins that we're pleased about, especially this early in the selling season.

A lot of times throughout the year, there are clients that we sell and then, go live during the year. That's normal every year.

As you recall, a couple of years back -- I forgot if it was '23 or '24; I think it was '23 -- there were really large clients that we sold and went live during the year. This isn't the case yet.

Who knows what we'll see. We don't ever plan for that.

But, nonetheless, a small amount of activity does happen where we sell and they go live during the year. Last year, that was the case. Every year, that's the case. But it's usually a longer tail of smaller clients that do that.

Peter Warendorf, Barclays.

If I'm doing my math right, it sounds like membership is probably up in the mid- to high-single digits range this year and revenue growth is maybe closer to low-double digits, low-teens.

Can you just help us think about how to bridge that gap? Maybe what's coming from utilization versus upsell versus any contribution from the new products?

Yeah. Look, I think, when you look at the midpoint for the year, again, excluding the impact of that other client, we're projecting, like, 11% growth at the midpoint. And so, with your lives growth, which is -- and ultimately, the utilizers, if you do the math -- and even ART Cycles -- all of those are contributing a significant part to that 11%.

But we also do -- again, we're proud of the cost control -- our level of cost control -- on behalf of our clients. But we do have an element of rate that's also included, which helps bridge that gap.

Those are the key pieces.

If you think about Mark's comments before, think about it as lower-utilizing lives being replaced by higher-utilizing lives, which are part of that so the straight math of just the increase in lives misses that little piece.

Yeah. Good point. .

Great. That's helpful. And then, maybe with a little bit of macro uncertainty out there, is there anything on the treatment mix side that you might think is worth calling out here?

No. Nothing unusual.

Sarah James, Cantor Fitzgerald.

You talked about Select Group becoming more predictable as it scales, how do you think about what a critical mass is for predictability? Are you already there now, given your exposure to small group on the ASO product? Or how long could it take to hit that critical mass level?

Yeah. Well, we're not there now, as I mentioned in my comments. Right now, what we're doing is going to market with the distributors and broker partners, et cetera, that will, through their salesforce, be selling Select, right?

For those, they would not go live until 2027. There's nothing to refer to now. in terms of what we're seeing today for that pool.

The pool doesn't have to get that big to start to become predictable. You're talking in the couple of hundred thousand lives range or thereabouts -- is my prediction, based on the data that we have, until it starts to become predictable and act more closer to the the book of the business, assuming no weird anomaly, in terms of one industry versus another being heavily weighted in that population, which we don't expect.

And so that -- until that happens, there may be a little bit of variability. But, relative to the overall number of lives that we have, it would not actually have any noticeable impact, if you will, on margins, overall, or our EBITDA margin and/or our gross margins, to speak of.

But, once it gets to enough of a pool across a long tail of smaller clients, it should become predictable. not unlike the book of business.

Just to put a fine point on it, Pete mentioned a couple of minutes ago how we do have clients that are of that size now. We obviously have that data.

But we also looked at our smaller-sized clients with a similar structure of benefit and whatnot. We do have a tremendous amount -- 10-years plus -- of data that we can use to help refine what we expect those pools to deliver, when they get to some level of scale.

We do have actuaries, just to be clear. All this was underwritten with those experts.

That makes sense. Just one follow-up, if I can? When you talked about the high-cost guardrails, how are they structured? Are you talking about reinsurance? Or are you talking about claims reverting to the employer at a certain attachment point? What is the average attachment point?

Well, the simplest -- there's a couple of guardrails. Again, without getting into all the details of the product but the simplest guardrail is a maximum dollar amount for high-cost claimants, right. A lifetime maximum, right?

And then, at that point, it's not going to revert back to the employer. It's just the employee then becomes effectively self-insured again. Or [cash-pay] is the simplest example of one of the guardrails that are out there.

Constantine Davides, Citizens.

Maybe, first question for Mark. You obviously had a big step-up in CapEx in '25. Just wondering if you can give us a little flavor for your expectations for 2026; if we see another step-up or maybe a drop-off; and then, whatever color you can provide around operating cash flow conversion for '26, as well.

Yeah. Sure. As I said a couple of minutes ago, a lot of the effort that we've put into improving and expanding our platform, as well as investments, as we've been expanding the number of products and really getting them launched, that really ramped up, let's call it, over the first half of 2025.

And so, as we come into 2026 and lap that, we do anticipate for the full year that there'll be a step-up but not a doubling.

I think, if you think about it in terms of a full-year impact of those levels of increase, is probably the right way to think about it.

And then, from a cash flow conversion standpoint -- and it's in our materials -- you'll note that we've made a significant reduction in our outstanding DSOs. Credit to our teams and the work that they've done to make that happen.

But there is a limit on how much we can continue to reduce that. There is a structure of how the cash will work.

I think, going forward, although we've been beating it for a couple of years now, the 75% conversion rate from adjusted EBITDA to cash flow is probably a better metric than what we've been able to achieve and beat that metric over the last couple of years.

Got it. Just one follow-up on the newer solutions: I know you said those would not really impact '26. But you talked about having 2.7 million eligible members now with access to those programs. What are you learning about targeting and marketing those programs to the members?

Again, I know it's early but where are you seeing the most success, in terms of those newer solutions. to date?

Yeah. It's not the traditional way we do it today, where we're doing the individual marketing to the end clients. It's leveraging distribution partners and their salesforce, i.e., brokers that, generally, today, sell overall --

He is asking about menopause and (multiple speakers) --

I'm sorry. I apologize.

The differences in the selling motion (multiple speakers) --

When we sell the expanded products with the fertility benefit, the salesforce is generally trained to sell those products we market to our clients, relative to those overall solutions.

And then, we have subject matter experts, as you might imagine, that are broaden in some of those areas.

We also, on top of it -- then, once they're [live-market] to the individual members, in conjunction with our client partners.

Allen Lutz, Bank of America.

This is [Deb], on for Allen.

I appreciate the color on the member base and some of the drivers there. Just curious if there's any particular industries where you saw the elevated administrative changes.

And then, it sounds like you're pretty constructive on the pipeline despite some of these higher administrative churn. How have your conversations with clients over the last month or two change, if, at all, around the labor market? Just any color there -- additional color -- would be helpful.

To the second part of your question, conversations have not really changed. The current pipeline and the early season wins that I referred to are generally coming from the carryover pipeline from 2025 and the selling season for 2026;.

Continuing to add to that pipeline is very underway. But I would say, generally, no different conversations, relative to the labor force, than what we've been having.

Got it. And then, any particular industries that you saw the elevated administrative changes?

No. It's across a bunch of industries.

I think the only common theme in it is, again, the apparent utilization rate that we're seeing from them were lower than the book.

There were no other questions from the lines at this time.

Well, thank you, Paul. Thank you, everyone, for joining us this afternoon.

Please, of course, as always, feel free to reach out to me on a follow-up with any additional questions.

Otherwise, we look forward to seeing you at some of the upcoming conferences or in the first quarter with our call in -- I guess that would be May.

Thank you, all, again.

Thank you. This does conclude today's conference.

You may disconnect your lines at this time. Have a wonderful day.

Thank you for your participation.