IVF treatment demand drops after Alabama ruling, and Progyny's stock tumbles

By Tomi Kilgore

Fertility-treatment company misses first-quarter revenue estimates, provides downbeat second-quarter outlook and cuts full-year view

Shares of Progyny Inc. tumbled Friday after the fertility-services company said the Supreme Court of Alabama's February ruling regarding in vitro fertilization seemed to scare off some potential customers.

The increased customer caution led to lower-than-expected first-quarter revenue and prompted the company to provide a downbeat outlook for the current quarter and cut its full-year outlook.

The stock (PGNY) plunged as much as 26.5% intraday, before paring gains to close down 15.3% at a two-year low of $27.53. The stock suffered its biggest one-day selloff since its record drop of 18.8% on Feb. 25, 2021.

Chief Executive Peter Anevski explained on the post-earnings call with analysts late Thursday that the quarter started on the same track as last year, with strong demand.

"However, unlike last year, we began to see the ramp in member activity leveling off slightly in March, coinciding with the national conversations about women's access to reproductive healthcare sparked by the Alabama Supreme Court ruling," Anevski said, according to an AlphaSense transcript.

The Alabama court ruled in mid-February that embryos created and frozen during IVF procedures were legally considered children, meaning the destruction of the embryos, even if accidental, can lead to prosecution.

Read: 'I'm devastated': Alabama IVF patients turn to GoFundMe for help after state ruling halts fertility services

Since then, Alabama has passed legislation to protect access to IVF procedures, but concerns remain about potential consequences, especially in states with more restrictive abortion laws.

Anevski said he can't be certain why people decide not to pursue IVF procedures, "as no one contacts us to say why they're not doing something," but he said that after looking at activity by client, industry and region, one noticeable pattern emerged.

"The modest dip in activity that we saw across the country was more pronounced in the states with the most restrictive laws for women's reproductive healthcare, suggesting that a relatively small number of members were proceeding with a greater degree of caution before commencing their fertility journey," Anevski said.

KeyBanc analyst Scott Schoenhaus followed by downgrading Progyny's stock to sector weight from overweight. He is now the only analyst, out of the 10 surveyed by FactSet who cover the company, that isn't bullish.

He said his previous bullish stance had been based expectations of sustained, healthy growth, but he is now "more weary" of the company's visibility into revenue, utilization and customer behavior.

"We would look to return to a more positive outlook on shares if we do see an improvement in underlying utilization and the ability for management to have better visibility into customer trends and ultimately its business," Schoenhaus wrote in a note to clients.

The company reported late Thursday first-quarter revenue of $278.1 million, up 7.6% from the same period a year ago but below the FactSet consensus of $289.4 million.

Fertility benefit services revenue rose 8% to $169.8 million, and pharmacy benefit services revenue grew 7% to $108.3 million.

For the second quarter, the company said it expects revenue of $300 million to $310 million, below the current FactSet consensus of $321.4 million, which has declined from the estimate of $335.8 million as of the end of April.

For the full year, the company cut its revenue guidance to $1.23 billion-$1.27 billion, from the range provided in late February of $1.285 billion-$1.315 billion.

The company also reported first-quarter net income that slipped to $16.9 million, or 17 cents a share, from $17.7 million, or 18 cents a share, in the same period a year ago.

On the bright side, excluding nonrecurring items, adjusted earnings per share of 39 cents beat the FactSet consensus of 35 cents.

The company said it expects adjusted EPS for the second quarter of 39 cents to 41 cents, compared with the current FactSet consensus of 41 cents, and raised full-year guidance to $1.61-$1.68 from $1.54-$1.59.

The stock has lost 26% year to date, while the S&P 500 index SPX has gained 9.5%.

-Tomi Kilgore

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05-12-24 0746ET

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