Progyny (PGNY)

Fertility benefits company Progyny (NASDAQ:PGNY) announced better-than-expected revenue in Q1 CY2025, with sales up 16.5% year on year to $324 million. On top of that, next quarter’s revenue guidance ($317.5 million at the midpoint) was surprisingly good and 3.1% above what analysts were expecting. Its non-GAAP profit of $0.48 per share was 7.7% above analysts’ consensus estimates.

Company Overview

Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ:PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

Progyny competes with traditional health insurance carriers that offer fertility coverage, specialized fertility benefit managers like Carrot Fertility and Maven Clinic, and general employee benefits platforms that have expanded into fertility services.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.21 billion in revenue over the past 12 months, Progyny is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Progyny grew its sales at an incredible 35.7% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Progyny’s annualized revenue growth of 17.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

Progyny also reports its number of units sold, which reached 16,160 in the latest quarter. Over the last two years, Progyny’s units sold averaged 2.9% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Progyny reported year-on-year revenue growth of 16.5%, and its $324 million of revenue exceeded Wall Street’s estimates by 5%. Company management is currently guiding for a 4.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.5% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

Progyny was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.2% was weak for a healthcare business.

On the plus side, Progyny’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.

This quarter, Progyny generated an operating profit margin of 7.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Progyny’s EPS grew at an astounding 106% compounded annual growth rate over the last five years, higher than its 35.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Progyny’s earnings to better understand the drivers of its performance. As we mentioned earlier, Progyny’s operating margin was flat this quarter but expanded by 1.7 percentage points over the last five years. On top of that, its share count shrank by 10.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Progyny reported EPS at $0.48, up from $0.39 in the same quarter last year. This print beat analysts’ estimates by 7.7%. Over the next 12 months, Wall Street expects Progyny’s full-year EPS of $1.73 to shrink by 5.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Progyny has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.8% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Progyny’s margin expanded by 10 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Progyny’s free cash flow clocked in at $46.97 million in Q1, equivalent to a 14.5% margin. This result was good as its margin was 5.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Progyny’s five-year average ROIC was negative 6.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Progyny’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can continue improving.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Progyny is a profitable, well-capitalized company with $146.9 million of cash and $135.2 million of debt on its balance sheet. This $11.65 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Progyny beat analysts’ revenue expectations this quarter. We were also glad its revenue guidance for next quarter exceeded Wall Street’s estimates. On the other hand, its sales volume missed significantly and its EPS guidance for next quarter fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded up 5% to $24.53 immediately after reporting.

Updated: May 15, 2025 at 11:40 PM EDT

Are you wondering whether to buy Progyny or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Progyny isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s rising cash profitability gives it more optionality, the downside is its subscale operations give it fewer distribution channels than its larger rivals.

Progyny’s P/E ratio based on the next 12 months is 13.4x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $26.25 on the company (compared to the current share price of $21.95).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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