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  "documentTitle": "Progyny, Inc. (PGNY)",
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  "authorName": "Spruce Point Capital Management",
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  "sourceTypeLabel": "Short seller",
  "presentationDate": "2023-02-07 00:00:00",
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  "notes": "This slide serves to build credibility by acknowledging prior reports while adding new, specific findings.",
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      "text": "Is it possible that PGNY inflated the amount of member lives that would be added from the 2022 selling season to cover up for an underwhelming selling season?",
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      "text": "We think the material spike in unbilled A/R that was disclosed in PGNY's 3Q22 10Q is largely attributable to aggressive revenue recognition from ~9 new clients. We find it hard to believe that revenue from its nine new clients that increased the member base by 4% in 3Q22 would be responsible for 22% of fertility benefits revenue in 3Q22.",
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      "text": "PGNY's CEO and Chairman were both granted substantial equity grants on January 1, 2022, that vest based on undisclosed revenue targets.",
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      "text": "We are unable to reconcile management's commentary about member additions from PGNY's 2022 selling season and believe that PGNY's selling season may have been overstated. We can't account for ~200,000 member lives in PGNY's lives under coverage. Is it possible that PGNY inflated the amount of member lives that would be added from the 2022 selling season to cover up for an underwhelming selling season?",
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      "text": "Our work also suggests that PGNY could be over-charging its members for fertility medication. We estimate that PGNY may be charging on average as much as $8,000 for fertility medication versus industry levels in the range of $5,000 to $6,000.",
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      "text": "We believe that consensus estimates are not accounting for material headwinds that will likely appear in 2023 from reduced utilization and lower member counts, and the absence of major price increases for its Pharmacy Solution benefit. We illustrate that the aging of the fertility benefit within PGNY's aggregate member base will reduce utilization. More specifically, revenues at PGNY's two largest clients, Google and Amazon, that have offered PGNY's benefit since 2017 and 2019, respectively, likely declined in Q3 which solidifies our belief that an aging fertility benefit will decrease utilization.",
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      "text": "Unbilled A/R has been used repeatedly since PGNY's IPO to beat consensus revenue expectations.",
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      "text": "We also see the obvious macroeconomic factors causing some couples to re-evaluate the lifelong expense of having a child. Further employee counts at existing clients have been a significant tailwind that will turn into a headwind with the recent layoffs and hiring freezes thus far announced throughout PGNY's client base.",
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      "text": "Spruce Point's forensic review has also identified incremental accounting issues, unaccounted for missing member lives, reduced run-rate revenue at Amazon and Google, as well as our take that PGNY is potentially overcharging members for fertility medication. Additionally, PGNY's CEO and Chairman were recently awarded substantial equity grants that vest based on undisclosed revenue targets. Lastly, we see other material factors that should weigh on consensus estimates.",
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      "text": "Another short report published in December last year highlighted issues with PGNY's accounting and size of its addressable market. Major accounting issues addressed by the report included the manipulation of gross margins by as much as 900 bps, use of aggressive revenue recognition stemming from unbilled and accrued revenues, and the magnitude of PGNY's bad debt expense.",
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      "text": "Spruce Point's Analysis Is Incremental To Other Issues Identified at PGNY",
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