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Peter Anevski

Thanks, Jamie. Thanks everyone for joining us today. Pleased to report we've had a good start to the year, double digit growth in both revenue and adjusted EBITDA over the prior year period, yielding record quarterly results for both of those, as well as gross margin expansion and the generation of significant quarterly cash flow.
In addition, we also made meaningful progress in laying the foundation for future growth through both our channel partnerships as well as the previously announced investments to expand our product portfolio and platform, enhance our member experience, and extend our leading position in women's health and family building.
As the second quarter begins, we're seeing that member engagement remains consistent with first quarter levels, both in terms of utilization as well as art cycle consumption. Following this strong start, we're pleased to be able to raise our full year guidance. The guidance for the remainder of the year continues to reflect a range of engagement and activity taking into account both what we experienced in 2024, as well as the uncertainty in the macro environment, which Mark will detail for you shortly.
The forces driving member demand are reflected in the latest market data. The CDC recently reported that birth rates for women 25 and younger are now at record lows, while the rates for women between 30 and 44 continue to increase. To put that into perspective. Although the absolute number of babies born in the US was down nearly 8% over the last 10 years, the number of babies born to women 30 or over was up 15%.
This divergence has been happening for decades now, literally, and it clearly shows that people are increasingly deferring family building to later in life. A different statistic that sharply highlights the significance of this shift is that more than 51% of all births in the US now come from women aged 30 or older. Not even a generation ago, it was closer to one-third.
That's a massive difference over a relatively short period of time and illustrates how for many family building has moved out of our 20s and into our 30s and beyond. The biological reality is that natural conception does become more difficult as we age, which helps to explain the increasing prevalence of infertility across our society, as well as the greater need for medical care and support.
And the consequences of this shift reach even further as maternal age increases. Employers often see increases in their maternity costs as well, given that age is a contributing factor to high risk pregnancies, high risk deliveries, and ongoing neonatal care. Employers can proactively manage these risks through Progeny's comprehensive solution. Our maternity solution, for example, focuses on whole person care and high cost claims avoidance through high touch clinical management, ensuring that the right care gets delivered to the member at the time that's right for them.
This then naturally extends into perimenopause and menopause, where early intervention and specialized symptom management can significantly improve the employee's quality of life while also avoiding unnecessary costs for the employers from unproductive rounds of care. At this time of year, HR leaders have begun to consider their near and long term benefit strategies, determining what their employee population need and evaluating solutions to address what's most critical.
Given the backdrop I just described, it isn't surprising to see that women's health continues to be a priority for all types of employers. One reason is that employers recognize the commitment they've made with the workforce to provide health care coverage for the diseases and conditions affecting them.
Another is the employment market remains highly competitive and employers want to recruit and retain the best possible talent. This can be seen in the most recent jobs report. The economy has added nearly 600,000 jobs just since January, which comes on top of the 2 million created in 2024, and the unemployment rate has remained at or around 4% for nearly a year.
Digging into this more specifically, even though our client base is exceptionally well diversified across 45 different industries, the sectors of the economy that have been driving much of this job growth over the past year, including healthcare, transportation, financial services, and manufacturing. Have been ongoing areas of strength for us. Past success isn't necessarily a predictor of the future, we enter this season feeling well positioned, and at this point in the year we're pleased with the level of activity and engagement we've seen thus far.
Pipeline in terms of dollars and number of opportunities is comparable to where it was a year ago, even though the average number of lives is lower at this point. The comparable dollars versus prior year are due to the composition of industries and utilization profiles for those prospects. Contact pipeline is still building at this time of year and historically continues to do so through the third quarter.
We create pipeline through a number of channels including our partner relationships which now include Cigna as our first national health plan, as well as a number of large regional plans such as Blue Cross Blue Shield of North Carolina and Blue Cross Blue Shield of Alabama, as well as our long standing partners CVS and Evernorth.
New pipeline is also built through conferences, events, inbounds from the benefit consultants, and direct outreach. Early commitments thus far are comparable to prior year. In every season our earliest sales activity tends to be driven mostly by the not nows that have carried over from the prior year. That's been the case this year as well. These are companies who may have had competing priorities that prevented them from making a decision about the benefit last year, but who are in a better position to do so now.
And while new sales are important to our growth, so too is expanding our relationship with existing clients. In any given year, we've typically seen 20% to 25% of the base take additional services with us, such as progenyRX, additional smart cycles, or other fertility services such as donor tissue. Last year, 30% of the base expanded in some way with the increment being driven by our newer services in maternity, postpartum, and menopause.
We are in our first year with these programs and are pleased with the enthusiasm we're seeing in the market. Though these services are expected to contribute up to 10% of revenue by 2028, we aren't expecting a meaningful contribution in the near term while we continue to penetrate our base and build awareness. Nonetheless, we believe these services over time will meaningfully increase the diversity in our portfolio and deepen our relationship with clients.
So far in 2025 we've expanded the solution even further, adding dual services to our comprehensive maternity offering and launching a parent and child well-being program to provide one on one guidance for child development, return to work assistance, and support work-life balance. In short, for this renewal and upsell season, we're in the market with a broader portfolio of services that enable employers to customize a robust women's health benefits strategy. Let me now turn the call over to Mark to walk you through the quarter. Mark.

Mark Livingston

Thank you, Pete, and good afternoon, everyone. I'll begin with our first quarter results and then provide our expectations for the second quarter and full year. First quarter revenue grew 16.5% to USD324 million, primarily due to an increase in the number of clients and covered lives as compared to a year ago.
The growth rate this quarter was somewhat enhanced by the unfavorable treatment mix shift that we highlighted to you a year ago. Though this was short lasting and only impacted the first quarter last year, there was a negative USD15 million dollar impact, as we disclosed to you at the time. If we were to normalize for this USD15 million revenue this quarter still grew at a double digit rate.
As discussed last quarter, revenue for the first half of 2025 will include a large former client who has provided for an extended transition period for members meeting certain criteria. In the first quarter, this contributed approximately USD31 million slightly more than the approximately USD28 to USD30 million that we had anticipated.
Excluding the impact of this client from both 2024 and 2025, first quarter revenue increased 19%. If we further normalize the year ago period for the USD15 million in unfavorable mix from the prior year, revenue this quarter increased more than 12%. In short, whichever way you prefer to look at it, this year has begun with solid growth in our core business. As of March 301, we had 532 clients with at least 1,000 lives, representing an average of 6.7 million covered lives in the quarter. This is consistent with what we had expected coming out of the most recent selling season.
I'll note that members this quarter do not include the large client under the transition of care agreement. This compares to 451 clients and an average of 6.35 million covered lives in the first quarter a year ago, highlighting how even with the loss of that large client, our member base is still up year over year as expected, reinforcing both the scale of the business as well as our diversification.
The substantial majority of our newest clients in lives, one in the 2024 selling season, have already launched at this point, and though a handful of relatively small clients are expected to launch in Q2 and Q3. Turning now to our member engagement metrics, female utilization was 0.46% in the quarter, consistent with the first quarter a year ago.
Utilization this quarter does not include the large client under the transition of care agreement, as only a limited number of members meeting certain criteria are eligible to use the benefit, which is not comparable and compatible with how we report the members from every other client. Of course this client's volume is reflected in our reported ART cycles, which will also enable you to continue modeling our volumes and revenue as you've always done.
On that basis, art cycles this quarter were 16,160, which is our highest quarterly total ever and reflects 9% growth over the year ago period. Today's press release includes a table to also report art cycles per unique female utilizer. You'll see 0.51 in the first quarter, which is consistent with how 2022 and 2023 began, though down slightly as expected from how 2024 began.
As one measure that we're seeing engagement return to more typical levels, I'd highlight that the year over year differential in art cycles per per unique has been lessening. For example, in Q3 of last year, this metric was 0.52, which was 4 basis points below where it was in Q3 of 2023 at 0.56. Then, as of this most recent quarter, that year over year differential halved to two basis points, [5.51] this quarter versus 0.53 in the year ago period.
With respect to the components of the top line, fertility revenue increased 22% in the quarter to USD206 million while pharmacy revenue increased 9% to USD118 million. That the differential in growth rates reflects a comparatively lower proportion of treatments requiring a pharmacy component versus the prior year period, which you can also see reflected in the lower art cycles per unique.
Turning now to our margins and operating expenses, gross profit increased 21% from the first quarter last year to USD76 million. This yielded a 23.4% gross margin, an improvement from the 22.4% margin in the prior year period due to the impact of the unfavorable mix shift in the year ago period, as well as some other timing items. For the full year, we expect gross margin expansion over 2024, although not quite at the same level as we saw in Q1 due to additional hiring and other investments contemplated in the plan.
Sales and marketing expense was 5.5% of revenue, reflecting a modest improvement from the year ago period as our economies and scale are helping to offset the investments we're making to expand our go to market resources and channel partnership relationships. GNA was 10.4% in the quarter, slightly higher than the first quarter a year ago, reflecting the previously disclosed investments we've begun to make to expand our product platform and integrate our research.
We expect these investments will continue to ramp in the second quarter and continue over the remainder of the year. Although dollars of adjusted EBITDA grew 15% to USD58 million the impact of our investments is seen as expected in the adjusted IBITDA margin, which declined modestly from the year ago period to 17.8%. Net income was USD15.1 million or USD0.17 per diluted share in the quarter. This compared to net income of USD16.9 million or USD0.17 per share in the year ago period.
The decrease was primarily due to a higher provision for income taxes, including the impact of discrete tax items which more than offset the higher operating profitability. Adjusted EPS was USD0.48 in the quarter, which compares to USD0.39 in the year period. Turning now to our cash flow and balance sheet, we generated nearly USD50 million of operating cash flow in the first quarter, nearly double the prior year period. The increase is due to the higher profitability, as well as the timing of certain working capital items in both periods and reflects our high rate of conversion of adjusted EBITDA to operating cash flow.
Looking beyond operating cash flow, you'll see we incurred USD2 million in incremental CapEx this quarter as compared to the year ago period. This was expected and reflects the investments we described to you last quarter in our member experience at acquisition, integration activities. We continue to expect the incremental CapEx for these projects to be approximately USD15 million over our 2024 spent.
As of March 31st, we had total working capital of USD331 million reflecting USD256 million in cash equivalents and marketable securities, and no debt. As compared to the year ago period, DSO improved by 14 days, reflecting our ongoing discipline and revenue cycle management. Though DSO did increase as usual on a sequential basis due to the ordinary seasonality that we see at the beginning of the year driven by the timing of treatments, client starts, and other factors.
Turning now to our expectations for the second quarter in the year, as the second quarter begins, we've continued to see member engagement at levels that are consistent with the historical range. Nevertheless, given the unexpected variability we experienced at certain times in 2024, the assumptions we're making today reflect the possibility that we'll see further variability in activity and treatments in the future.
As you can see in the table on the last page of today's press release, we continue to expect that full year utilization will remain at 1.02% at the low end and 1.04% at the high end. In terms of consumption, even though the year has begun slightly better than we had originally expected, we're maintaining our assumption on our cycles per unique at 0.89 at the low end of the range and 0.91 at the high end.
With these assumptions we're projecting between USD310 million to USD325 million in second quarter revenue, reflecting growth of 2% to 7%. This includes between USD12.7 million and USD14.7 million in contribution from the client under the transition of care arrangement. If we exclude that client's contribution from both periods, second quarter revenue growth is expected to be between 11% and 16%.
On profitability, we expect between USD49 million to USD53 million in adjusted EBITDA in the second quarter along with net income of between USD11.5 million to USD14.5 million. This equates to USD0.13 and USD0.16 of earnings per share, or USD0.40 and USD0.43 of adjusted EPS on the basis of approximately 91 million fully diluted shares.
Given our strong start to the year, we're pleased to be in a position to raise our full year guidance. We now project revenue of between USD1.185billion to USD1.235 billion, reflecting growth of between 1.5% and 5.8%. This assumes a contribution of USD44 million to USD46 million of revenue from the large client under the transition of care agreement. If we exclude that client from both years, our full year revenue growth is estimated to be 11% to 15%.
We also expect between USD190 million to USD203 million in adjusted EBITDA with net income of between USD42.4 million to USD 51.8 million. This equates to USD0.46 and USD0.56 earnings per diluted share and USD1.54 and USD1.64 of adjusted EPS on the basis of approximately 92 million fully diluted shares for the year. And with that we'd like to now open the call for questions. Operator, can you please provide the instructions?

Question and Answer Session

Operator

Thank you very much. [Operator Instructions]
Your first question is coming from Anne Samuel of JP Morgan. Anne, your line is live.

Anne Samuel

Great, thanks. Congrats on the great print tonight and Pete, congratulations on your Time Time Magazine recognition. Really great to see, the emphasis there on fertility benefits as well. If I were to look at, historical seasonality of cycles per utilizer, you tend to have a step up in 2Q from 1Q, but when we look at the guide, it implies, kind of a more similar rate in 2Q to 1Q. So I was just curious, is that, kind of to account for some of the uncertainty that you mentioned? Or is there something else going on that might change, kind of how we should be thinking about the normal seasonality of utilization.

Peter Anevski

Hi, Annie, and thanks so much. Yeah, we're excited for the for the recognition. We're proud of what we're doing here, so it's great to see that. As it relates to your question, it is more around, having the guidance reflect the uncertainty that it is something that we're seeing is a simple answer.

Anne Samuel

Helpful, thank you. And then maybe just one more, you called out the gross margin expansion this quarter and it was up really nicely. I was just wondering, can you speak to the drivers there and just how we should be thinking about that line for the rest of the year. Thanks.

Mark Livingston

Yeah, so yeah, as I said in my prepared comments, I think you have to take into consideration. Last year was a bit suppressed given the the revenue shortfall from the mix issue. Again, we typically are leveraging, our internal folks as revenue grows, and that was an unexpected reduction. In revenue, so we were a bit suppressed last year and we had a good quarter this year.
I think again as we continue to make some of the investments that we've been highlighting, a portion of those do actually hit in our cost of services area and will, bring gross margins down. We haven't necessarily guided to a specific number for the year, but we do expect it to expand for the full year versus the full year of 24'. I hope that's helpful.

Anne Samuel

Very helpful. Thank you.

Operator

Thank you very much. Your next question is coming from Jalendra Singh of Tourist Securities. Jalendra, your line is live.

Jalendra Singh

Thank you and congrats in a strong quarter and congrats on the recognition. I want to follow up on your comments around the 2026 selling scene. I know you guys noted that it is still early and the most sales, most of sales have been not now from last year.
But outside of that, are you seeing any indications of employers? Putting the RSP process on hold things taking longer, which could mean that decision making could be a little delayed this year. And related to that, you also talked about the sales goal for the year. Is your sales goal similar to your historical target of adding as many lives as the year prior? Of course it's 1.1 million lives excluding Amazon.

Michael Sturmer

Yeah, hey, it's Michael. Thanks for the question. So first, yeah, our sales goal is the same as it is every year, we're trying to, bring on as much new business as we can. And as we said on an investor day last summer, we're targeting at least to add a million new lives each year, so that's unchanged, as for the pipeline, you sort of you sort of referenced it certainly is early and there's, certainly a lot more pipeline months ahead of us that we continue to bring on new opportunities and important sort of from a comparable perspective.
The number of opportunities and dollars are comparable to prior year while we're seeing the average lives of lagging a little bit over from last year that that could be a lot of factors that could be the timing, certainly some of the, macro macro environment, macroeconomic environment aspects could be driving a little bit of that and a little bit of uncertainty in some businesses. But we're certainly seeing, a wide array and diversity within employers that we have in the pipeline.

Peter Anevski

And then yeah, specifically to your question, we, we're not seeing a slowdown in or sort of pauses if you will, the way you were describing it in in RFP activities or sort of processes that are started. That's not what we're seeing and so I just wanted to make sure we just, answer that question specifically.

Jalendra Singh

Okay, and in my follow up, I want to ask about the 16.3% incremental adjusted EBITDA margin on incremental revenue in the quarter. Can you share some thoughts on that metric? Where do you see that metric trending near term, and how do you think about the path to getting that metric back to that historical 20% plus longer term?

Peter Anevski

Yes, so we had talked about it in at our previous call a year and when we put out our guidance for the year overall. The the expectation for this year in particular due to the incremental investment. That is going to hit the P&L as well as incremental investment, which we call that that'll be higher cap X is, I'll call it one time if you will, right?
So overall USD15 million of incremental P&L expense relative to the investments in the platform and the product expansion and the investments in the acquisitions that we've made is going to hit the P&L this year makes a big difference relative to marginal incremental revenue. So when you talk about the short term, that's sort of how you should look at the year, but those are all really important initiatives that will continue to position us and hold our position as the leader in the space.

Jalendra Singh

Thanks a lot.

Operator

Thank you very much. Your next question is coming from Michael Churney of Larin Partners. Michael, your line is life.

Unidentified Participant 2

Good afternoon. This is Ahmed on for my attorney. Congrats on the great quarter. If I could ask about the new modules that you've been adding, I appreciate the color you guys gave, but if you could double click on that, which modules are getting the most interest right now, we'd love to get any additional color and how you think about how they will eventually ramp longer term to your longer range targets.

Peter Anevski

Yeah, I think, well, it depends on how you define interest from a sales perspective. Last year and so far early this year, all of the modules that you are getting interest where we had, 20% of clients overall last year and as the sales year starting this year by one or more of the of the new modules as it relates to engagement with the modules. There's a higher level of engagement.
With the menopause, product, and that the reason for that is that it's a much larger addressable audience, vis the maternity product, and so that's probably, that's the easiest answer.

Unidentified Participant 2

Got it, thank you. And if I could ask another one, are you noticing any incremental concerns from employers in your conversations with them about 2026? I know you commented about the selling season, it's really early, but just any sort of hesitation there?

Michael Sturmer

I think, again, sort of, as I was referencing, earlier. There, there's certainly opportunities and dollars are comparable to last year and again lives are average lives are lagging a little bit again, it's hard to speculate at this time, but certainly there could be a little bit of the macro environment.
As a fact creating some uncertainty with some businesses though it's certainly not all businesses and that's also why you know it's important as you look at our book and with over you know clients in over 45 different industries, right, that diversification really comes in in into play here and we're seeing that in the pipeline as well.

Unidentified Participant 2

Great thank you congrats.

Operator

Thank you very much. [Operator Instructions]. Your next question is coming from David Larson of BTIG. David, your line is life.

David Larson

Hi, congratulations on the good quarter and the sort of resurgence in revenue growth. Can you talk about potential impact tariffs on your book of business? Could that possibly increase your cost of goods for your members for like the specialty medications or not? And would you be able to sort of pass those along to customers or not? Just any color there in terms of your own cost base and then what you might be hearing from clients, customers, health plans, is this even a topic of discussion or not? Thank you.

Peter Anevski

Relative to existing tariffs that are announced, not really an impact for us on costs relative to comments that are out there around potential tariffs on pharmaceuticals based on what's been discussed to date.
End-state drugs don't appear to be something that's being considered in terms of tariffs, but tariffs on potentially materials that go into drug manufacturing. So hard to say to be hard to say if it will have an impact. We do have flexibility in our arrangements with our clients. Should there be an increase, but that's not the only lever that we have. We would also work with our industry partners to mitigate collectively the impact to plant sponsors is essentially how I think about it.

David Larson

Okay, and then just another quick one. It seems to me like with the 100 basis point increase in the unemployment rate that we saw last year, the last year and a half with rising interest rates, that may have been a factor in in like the temporary slowdown of 24, but it seems to me like that's really stabilized now that we're post-election. Just any thoughts on Trump's views on, fertility. I think he said he wanted health plans to cover IVF. Just any thoughts there, will that have an impact or not? Thanks.

Peter Anevski

Well, there's an executive order that was put out in February asking for a recommendation around both protecting access as well as addressing affordability. The readout from that executive order is expected unless it moves, it's expected May 19th and so from that perspective, the spirit of the order is positive relative to those two things.
Besides that, there's very little information being leaked or otherwise in terms of what direction that recommendation may go. Hard for me to say, how positive it may be or not. A relative to what that executive order would recommend, but it's recommendations, policy recommendations, it's not legislation as it sits now in terms of how the executive order was written, so we'll see what happens. But again, I start out with my first statement that the spirit of the order is positive relative to IVF.

David Larson

Okay, thanks very much. Congrats on a good quarter. I'll hop back in the queue.

Operator

Thank you very much. Your next question is coming from Sarah James of Cantor Fitzgerald. Sarah, your line is.

Sarah James

Thank you. You mentioned not anticipating the gross margin beat to continue through the year due to investments, but given the size of the beat, it implies a pretty sizable investment. So could you go into a little bit more detail on what those are, how much is hiring, and what are the non-staff related investments?

Peter Anevski

Yeah, so overall we talked about the incremental investment related to both the platform as well as the product capabilities and expansion and and the investments in the acquisitions to be, that's going to hit the P&L to be roughly overall USD15 million. The details of it, I'm not sure would be constructive relative to how much of that is hiring versus other things, but nonetheless, we had sized it and that and that number is still our estimate of the impact for this year.

Sarah James

Got it. And then one follow up on the tariff discussion, if there are tariffs on some of the ingredients, do you anticipate it could have any impact on the timing of drug shipments or availability?

Peter Anevski

I again, without any more visibility into what might happen, I don't anticipate that. I'm not sure why a tariff might impact timing of shipments, but beyond that, I can't speculate.

Sarah James

Thank you.

Operator

Thank you very much. Our next question is coming from Dev Wirauria, and she's from Bank of America. Dev, your line is life.

Dev Wirasuriya

Hey, thanks for taking my question. Dev on here for Alan Latts. I'm just trying to understand a little bit about, pricing benefits, in the guide and in the quarter here. Could you just remind us, how much, if at all, of a pricing benefit is expected, in art cycles for the year, what you're seeing here early on in Q1.
And just maybe just, that was like typical inflation and IVF procedures and cost, versus kind of historical ranges, and then I got one more follow up. Thank you.

Peter Anevski

Yeah, I think you're referring to the growth and how much of the growth is driven by price. The answer is not really any. So, it's all a function of, engagement, and consumption and activity, with the benefit as opposed to, price.

Dev Wirasuriya

Okay, great. And is that does the same hold for I guess the pharmacy benefit? I'm just curious how, a drug price, branded versus a genetic inflation, layers into that. For the quarter and I guess expectations for the year there as well. Thank you.

Peter Anevski

Yes, but the pharmacy benefit it's very little. There are moderate drug price increases to certain drugs that are incorporated in it, but again, the majority of it is due to, the larger number of lives under management and the activity within those members.

Dev Wirasuriya

Great, thank you.

Operator

Thank you very much. At this time, I don't see any further questions in the queue. I will now hand back over to James for any further comments.

James Hart

Thank you so much, Jenny. Thanks everyone for joining us this afternoon. Please feel free to reach out to me in the next few days or otherwise, I'm sure we'll see many of you next week at the Bank of America conference. Thanks again for your time.

Operator

Thank you very much. That does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful rest of the day. We thank you for your participation.