{ "docId": "019dd923-622c-750b-8b99-4fdf89a4b224", "docSlug": "bcbeb3ac7b21", "documentTitle": "Progyny, Inc. (PGNY)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2023-02-07 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 6, "pageCount": 100, "prevPage": 5, "nextPage": 7, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 4, "notes": "The slide serves as the opening thesis statement for an activist short report.", "elementsJson": [ "headline_text", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-4fdf89a4b224/6", "deckHref": "/decks/019dd923-622c-750b-8b99-4fdf89a4b224", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-4fdf89a4b224.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-4fdf89a4b224#slide-6", "components": [ { "bbox": null, "kind": "callout", "text": "We see 60% to 80% downside risk to PGNY’s share price to $7 to $14 per share.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2b61-7647-86ed-53dcba15ac06", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside risk: 60% - 80%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-2b61-7647-86ed-55a98df99fdf", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.83 }, "kind": "paragraph", "text": "PGNY pitches a story that fertility benefits are a win-win for employees and employers. However, we find that PGNY’s marketing claims, and its outcomes data in particular, are highly problematic, and that PGNY’s treatment model is so popular with the fertility industrial complex because it maximizes revenue for all parties involved despite clear conflicts of interest and questionable support from existing scientific research. Beyond PGNY management's past proximity to a massive accounting fraud, we are struck by the team’s extremely limited healthcare expertise and the unsavory parallels in healthcare conflicts of interest between WebMD and PGNY. To top it off, we believe Wall Street analysts have wrongly compared PGNY to high-margin, technology-related healthcare companies when the Company is nothing of the sort. We see 60% to 80% downside risk to PGNY’s share price to $7 to $14 per share.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "53e58c12-e916-4ff0-9212-854f1a7f92fd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.18 }, "kind": "paragraph", "text": "Progyny (Nasdaq: PGNY or “the Company”) is a $3.1 billion market capitalization fertility benefit manager. The Company offers a structured fertility insurance benefit targeting self-insured employers. The Company does not operate its own fertility clinics or provide any medical services. PGNY went public in 2019 and has grown to over $700m in LTM revenue.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ad602afd-2f98-4d2c-a027-8d1387b11c01", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.32, "w": 0.96, "x": 0.02, "y": 0.5 }, "kind": "paragraph", "text": "The top three PGNY executives, as well as a board member, though not directly implicated, held senior management roles at WebMD and/or its predecessor company Medical Manager, where a massive accounting fraud involving 16 members of senior management was uncovered. We highlight additional accounting concerns related to revenue and expense recognition, as well as significant inconsistencies related to the Company’s client and member disclosures. We find that member churn is greater than PGNY implies and that revenue from its two largest clients, Amazon and Alphabet, likely declined last quarter. Moreover, we have identified numerous headwinds to PGNY’s growth in 2023 which suggest the Company will likely miss current Street expectations. These include several non-recurring revenue sources from 2022, macroeconomic factors such as layoffs, downward pressure on benefit utilization, and an increasingly competitive environment as the fertility marketplace quickly becomes commoditized. Further, we believe that pharmacy benefit outperformance, which has counteracted medical revenue disappointments, will cease in 2023. We also find that new customers are contributing less revenue per member as customer acquisition costs are skyrocketing.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b443d4ea-d19e-4a1c-adc9-e863c903f7f6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.96, "x": 0.02, "y": 0.31 }, "kind": "paragraph", "text": "Last December, a bearish research report on PGNY identified a relatively narrow range of accounting issues related to revenue recognition, bad debt expense, and stock-based compensation and contended that the Company has overstated its addressable market. We believe the research was both compelling and consistent with our own findings. However, we believe we have identified a broader range of financial, operating, business model, and management issues that go far beyond those previously discussed and raise serious questions about management’s disclosures and marketing claims and the ethics of the PGNY approach to fertility.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bf21fcd8-be7c-4d4c-9fd8-cc7237524501", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.68, "x": 0.28, "y": 0.03 }, "kind": "title", "text": "Spruce Point Issues A “Strong Sell” Opinion On Progyny (PGNY) With 60% - 80% Downside Risk", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e9103f20-7a65-44e1-a58b-695ae96d10da", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "fabe7641-6d7a-47f5-959f-6a3e861fc376", "evidence": "Spruce Point Issues A “Strong Sell” Opinion On Progyny (PGNY) With 60% - 80% Downside Risk", "confidence": 0.8 } ], "frameworks": [], "arcBeats": [ { "to": 20, "from": 6, "beatId": "03536da8-6567-4733-bfa6-135f9da8b71f", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Complication", "beatSlug": "complication", "evidence": "The document outlines several issues with PGNY's reporting, management, and industry position.", "position": 1, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [ { "to": 20, "from": 6, "name": "Aha Moment", "slug": "03-aha-moment", "bestFor": "Data-heavy sections, research findings, analytical arguments", "matchId": "29317d8b-0853-47fe-b80c-7bbd608ade0d", "evidence": "The document presents several red flags in PGNY's reporting and management.", "position": 0, "objective": "What are the key issues with PGNY's reporting and management?", "structure": "The Problem/Question -> What the Data Shows -> The Insight", "confidence": 0.8, "description": "Establish a tension, present data, then deliver the insight that changes everything" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }