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Progyny, Inc. (NASDAQ:PGNY)
Q1 2020 Earnings Call
May 12, 2020, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, and welcome to the Progyny, Inc. first-quarter 2020 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to James Hart, vice president of investor relations.

Please go ahead.

James Hart -- Vice President of Investor Relations

Thank you, Andrea, and good afternoon, everyone. Welcome to our first-quarter conference call. With me today are David Schlanger, CEO of Progyny; and Pete Anevski, president, CFO, and COO. We will begin with some prepared remarks before we open the call for your question.

Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about our positioning to successfully manage the impact of COVID-19 and the associated economic uncertainty on our business, our financial outlook for the second quarter of 2020, the impact of COVID-19 on our second-quarter results and beyond, our expectations on the timing of recovery of the fertility industry and the resumption of fertility services at provider clinics, our number of members and the impact of COVID-19 on our clients and our ability to acquire new clients and maintain existing clients, the efficacy of our remote working environment, our market opportunities and size, business performance, our industry outlook, financial outlook, plans and objectives for future operations and other nonhistorical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Progyny's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our periodic and current reports filed with the SEC, including in the section entitled Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31st, 2019, as well as our press release and 8-K that were issued this afternoon. During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.progeny.com. I would now like to turn the call over to David.

David Schlanger -- Chief Executive Officer

Thank you, Jamie, and thank you, everyone, for joining us this afternoon. We hope that each of you, your families and your loved ones continue to be healthy and safe. I'm pleased to open today's call by reporting that everyone at Progyny is doing well. COVID-19 has had an unprecedented impact around the world.

As the pandemic began to unfold, we made the decision to work from home starting in mid-March. As Pete will describe later, we are well prepared to make this shift to a virtual work environment, and we are extremely proud of how our team has managed this transition. They have not only continued to provide the same high-quality service that our clients and members expect but also maintain their motivation and commitment to Progyny's mission. On this call, our focus will be to help you understand the specific impacts that COVID has had on the fertility industry and our business, including our members and clients, as well as how we have responded in managing the business and the return to normalcy that we are beginning to see.

When we last spoke with you on March 5th and issued financial guidance, the pandemic was still in its earliest stage in the U.S. and our clinics weren't seeing any meaningful impacts to their patient volumes. Over the course of the subsequent two weeks, COVID was declared a pandemic. State and local authorities began issuing stay-at-home orders.

And then on March 17, the American Society for Reproductive Medicine issued guidelines recommending that fertility clinics should cease initiating new fertility treatments. The significant majority of the clinics in our network chose to adhere to ASRM's guidelines and our volume of fertility treatments and dispensing of the related medications declined significantly over the latter part of the quarter. Given all of the uncertainties created by the pandemic, its duration, its geographic reach and our members' access to treatments, we withdrew our financial guidance shortly thereafter. Although many clinics remained open on a limited basis for emerging needs and to perform initial consultations, often via telemedicine, most patients weren't able to progress actual treatment.

And that drop in patient activity negatively impacted our first-quarter results. Through the end of March and into the first half of April, we saw significant reductions in the utilization of the benefit by our members, down to as low as 15% when compared to the early part of Q1 or 15% of what we consider to be normal levels. Despite this, we are reporting a 72% increase in revenue over the first quarter of 2019, as well as significant growth in adjusted EBITDA and net income and more than $12 million of positive operating cash flow this quarter. These results were due to the strong start we had to the year prior to the impacts of COVID-19.

In April, the New York Department of Health declared that fertility is an essential health service and stated that clinics have the authority to treat their patients and perform procedures during the pandemic. Then on April 24th, ASRM updated its guidelines, which were reaffirmed on May 11th, advising that practices can reopen for all procedures so long as it can be done in a measured way that is safe for patients and staff. Fortunately, many clinics had already begun preparing new protocols to address patient and staff safety, such as reducing the number of people in the clinic at any one time, screening patients before each appointment and requiring that patients wear mask and that PPE be used by clinical staff. Most clinics have published their safety protocols on their websites for patients' convenience.

These preparations have put fertility clinics in a stronger position to open sooner rather than later with all of their services. Over the last few weeks, we are already seeing week-to-week acceleration in the volume of patient appointments and medication dispensing. This acceleration of member activity demonstrates that members are anxious to return to treatment and is evidence that the pause in treatment they endured hasn't been their desire to achieve their family building goals. By the end of June, we expect to see all of our network clinics open and providing their full range of services and patient volumes should continue to ramp up as members feel more and more comfortable with the safety protocols established by their clinic of choice, though it's still too early at this point to know when member utilization will return to normal levels.

For our members, waiting for treatment has added a significant amount of stress to a journey that is already enormously challenging for many people, and Progyny has been there to help support them. Our patient care advocates have been in frequent contact with their members and have been providing emotional support and guidance, including around the issues of how COVID could impact their unique treatment journeys. We've held webinars on mental health and wellness and on helping members understand how to effectively use telemedicine to start the fertility journey. These events had very strong turnouts, which is another positive indicator of how eager our members are to resume their treatment journeys.

We've been able to provide this high level of support because despite the drop in volumes and revenue, we made the decision to keep the full Progyny team intact. We did this with the belief that the disruption to our industry will be shorter than it will be for many other industries. And because we felt it was important to preserve the talented organization and unique culture we had built. And to continue to be there for our members during what we knew would be an especially trying period.

Our member satisfaction scores have continued to trend at or above the levels they were prior to the pandemic, showing that our members have been appreciative of our efforts. We've also been there for our providers. We've been in frequent contact with our network physicians through both direct conversations, as well as through surveys. We've been sharing the survey results with our network to help our physicians understand how their peers have been impacted and how they are approaching COVID-related issues and challenges.

We know that clinics are reopening or actively preparing to reopen, and we believe that our network is well positioned to effectively manage the backlog of Progyny member volume we expect to see. Practitioners are telling us that they are adapting to safely accommodate the expected patient backlog. For example, many will be practicing with A and B teams, extending hours, both during the week and on weekends as necessary in order to manage the volume. In addition, many are now leveraging telemedicine and in some cases, condensing the typical multiple office visits for consultations into a single office visit.

In addition, for some of the largest clinics on the East Coast and West Coast, medical tourism has been a meaningful portion of their practice volume, specifically from patients traveling from Europe or Asia. As travel restrictions remain in effect and medical tourism remains curtailed, this will create additional capacity at these clinics to manage their backlog of U.S. patients. As we are beginning to see clinics reopen and members reengage, we believe fertility will be on the leading edge of the recovery relative to other areas of the economy.

As it relates to the overall economy, I'd like to spend a moment discussing how COVID has impacted Progyny's employer clients. We have all seen the unprecedented job losses, unemployment claims reported in the news. On some level, all companies have been meaningfully impacted by COVID. Fortunately, however, taken as a whole, Progyny's customer base has avoided the worst of these impacts.

As of March 31, we had 2.1 million members. We are pleased to report that as of today, there has not been a reduction to our 2.1 million members. And we believe there will not be a net reduction in members as a result of COVID. We are basing this on a review we performed on each of our clients, taking into account our normal conversations with them, as well as what they have said publicly, if anything, about the impacts of COVID to their workforce.

There were two important conclusions from this review. First, the clients that represent the significant majority of both our revenues and membership haven't announced any workforce reductions or meaningful furloughs. In fact, several of our largest customers have publicly said they are hiring or are committed to make no workforce reductions in 2020. Second, for those industries that have been most impacted by COVID-19 to this point, specifically, hospitality, travel, restaurants, retail clothing, publishers, we believe that the impact to Progyny revenues from any announced layoffs or work furloughs and clients in these industries will be de minimis.

In addition, many of these companies are continuing to provide full medical benefits to any affected employees for an extended period of time, further reducing the potential impact to Progyny. Obviously, the broader economic situation is still evolving and we will need to continue monitoring what's happening with our clients. Turning now to the impacts of COVID-19 to our 2020 selling season. At this point in the year, we are actively selling as we would be in any year, both pitching new clients, as well as reengaging with prospects who previously gave us a not now during the prior selling season.

Consistent with how it typically happens, we continue to expect that the majority of client decisions will be made at the end of summer or early fall. Although much of what we are doing up to now is very consistent with prior sales seasons, we have had to make certain adjustments to our selling process itself. For example, we aren't attending conferences and have shifted from meetings that would normally be in person to virtual and telephonic meetings. But despite these challenges, our sales team is out there engaging with prospects and our sales executives have been successful in getting meetings with potential clients.

Despite the fact that the pandemic has created a certain level of distraction for many HR teams, we believe that the level of sales activity we are seeing in this environment is positive and encouraging and is comparable to what we saw last year at this time. We have, however, adjusted the focus of our go-to-market efforts by more narrowly prioritizing our sales activities and being sensitive to those companies we approach. We aren't pitching to airline or hospitality companies, for example. Instead, we are focusing on industries that are better positioned in this environment and where we've done well historically, such as technology, consumer packaged goods, pharmaceuticals, software and financial services.

We are also focused on targeting a higher percentage of companies who are currently offering fertility coverage, levering the strength of the cost savings within our value proposition. Our program offers significant savings compared to a carrier program, which is always important, but those savings become even more relevant in an uncertain economic climate. Historically, two thirds of our clients had some level of fertility coverage prior to adopting Progyny and in nearly all those cases, the programs were through their carrier. So we clearly understand how to successfully market ourselves to that audience.

Last year, early in the selling season, we received a handful of commitments from clients who had previously told us not now in a prior sales season. We are experiencing a similar level of early commitments for 2021 that we experienced as of this time last year. And in just the last few weeks, we were awarded business for 2021 by two of these companies. A handful of early client commitments doesn't make an entire sales season, but these early commitments, and in particular, the two we recently received are a good indicator that there are companies out there who are willing and able to make a decision even in this difficult environment.

It's impossible to know what the world will look like in late summer and early fall when our new client prospects will be making their benefit decisions for 2021. But with what we can control right now, we are seeing good activity, including the handful of early commitments already received, the receipt of new RFPs and the prospects that we are moving through the sales stages of the pipeline. Another area we can control is by continuing our emphasis on upselling to existing customers by adding Progyny Rx, for example, or by convincing them to cover more cycles. With Progyny Rx, our program provides hard dollar savings when compared to a traditional PBM, and we believe that this is particularly compelling message in this economic environment as companies are looking for ways to be more thoughtful with what they spend.

We are collectively going through unprecedented times. However, some things don't change. One of them is the desire to have a children and start a family. In addition, all of the macro trends that have helped contribute to our growth remain intact, the high and growing rates of infertility, the lack of adequate coverage in the U.S.

with this highly prevalent medical need, the need for inclusiveness and equality in the workplace and the need for employers to get the most from their healthcare dollars. We believe that as we collectively emerge from this crisis, Progyny's mission and how we accomplish it cost effectively for our clients becomes even more important. As we look back across other times of national crises, we see that people tend to use these periods to think about what is really important to them. In these moments, family and family building become even more relevant to people than it was before.

We believe employers will embrace the societal trends that result from the COVID-19 pandemic and that family building benefits could take on even more significance. Finally, we have 135 clients today. With thousands of companies covering fertility through their carriers, we can demonstrate tangible financial benefits to the Progyny program, which is why we continue to believe that we have meaningful opportunities going forward. With that, I'd like to turn the call over to Pete to walk you through the financials in greater detail.

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Thanks, David. I'll begin today by reviewing our move to a virtual environment, which was a seamless transition because we already have the right tools and systems in place to accommodate a virtual office and working remotely for every employee. Our cloud-based IT and SaaS system architecture provided us with the flexibility we needed to be able to work effectively in a remote environment. We already had a robust business continuity plan in place that was implemented so that all of our teams have been able to perform their functions in a HIPAA secure environment without any compromises to data security, functionality or any degradation to levels of service.

As a result, there was no disruption to our day-to-day processes or to our business controls. In addition, all the services we provide to our members, clinics and clients continue as normal and without any interruption. Our PCAs, for example, continue to have access to all the tools and resources they need to continue supporting members while working from home. As David mentioned, we've kept the Progyny team intact despite the drop in treatment volumes at the back end of the quarter.

We made this decision in anticipation of the resumption in services at the clinics, as well as the corresponding ramp up toward normal treatment levels. As that ramp happens, our care management team will be ready to support our members and the clinics. We had the flexibility to make this decision given the strength of our balance sheet. As of March 31st, we had 91.6 million of cash, an increase of 11.3 million from our balance sheet at December 31st, and total working capital of approximately 103 million with no debt.

Because of our substantial cash balance, our near term positive cash flow, zero debt and an untapped 15 million credit facility, we have full confidence in our ability to manage through any temporary disruption to our business during this period. The significant majority of our expenses are variable in conjunction with treatment volumes. We don't incur any clinical lab costs without treatments and there are no minimum guarantee payments in either our provider or specialty pharmacy networks. Within cost of services, the only portion that isn't 100% variable is employee-related costs for our care management functions, the PCAs, provider relations and provider account management teams.

Across the organization, we're taking prudent actions to manage our costs where it makes sense to do so. We're deferring the expenses where it won't have a meaningful impact in running the business. We're continuing to hire and are reviewing all positions to see what roles need to be filled now versus those roles that could be deferred until later in the year. We have significantly reduced travel expenses and are being disciplined with all discretionary costs across the organization.

Turning now to the results for the quarter. We were on track to deliver a strong first quarter, both from a financial perspective, as well as in the number of treatments performed prior to the impact of COVID-19 on our business. I'll walk you through the highlights, but please keep in mind that comparisons to prior year do not reflect our potential given the dramatic reduction in volumes due to COVID-19 that we saw toward the end of the quarter. We generated 81 million in revenue, an increase of 72% when compared to 47.2 million in the first-quarter last year.

We had 132 clients at the end of the quarter and approximately 2.1 million members at March 31st versus 78 clients and approximately 1 million members the same time last year. Fertility benefits revenue increased 47% to 59.4 million, with the growth being driven by a higher number of clients and covered lives. Pharmacy benefits revenue increased from 6.8 million in the first-quarter last year to 21.6 million this quarter due primarily to an increase in the number of clients with the Progyny Rx benefit as compared to last year. Approximately 70% of our clients now have the Rx benefit compared to 60% of our clients a year ago.

Turning to our utilization. Cycle counts and utilization patterns were on pace for a strong quarter until we experienced the sharp drop in volumes over the latter part of March. The utilization rate was trending slightly above last year until we saw the impact of the pandemic. As a result, we ended up with a slight decline in utilization during the quarter.

In the first quarter, the utilization rate was 0.46% for all members and 0.41% for female utilizers as compared to 0.53% and 0.47%, respectively, a year ago. There were 4,443 ART cycles performed in the quarter, a 69% increase from the first-quarter last year. The pandemic also caused a different mix in ART cycles delivered during the quarter versus the prior-year period. For example, there was a higher percentage of cycles that were canceled mid treatment.

And while each of those contributed a small amount of revenue than a completed cycle, they are fully included in the ART cycle count consistent with CDC reporting methodology. Turning now to our expenses and margins. Our gross profit of 16.6 million increased 67% from the prior-year period. Gross margin was 20.5% and reflected a modest decrease of 60 basis points from the 21.1% gross margin reported in the first quarter of 2019.

The slight decline was primarily due to our decision to maintain our care management functions during the pause in treatments caused by COVID-19. Sales and marketing was 4% of revenue in the first quarter, reflecting an improvement of approximately 100 basis points as compared to the first-quarter last year. We continue to see economies of scale in sales and marketing given our nearly 100% client retention rate, as well as greater efficiencies in our operations. G&A this quarter was 11.7% of revenue, an increase of 210 basis points from the year ago quarter due primarily to the 1.7 million in additional costs associated with operating as a public company.

Adjusted EBITDA of 7.1 million this quarter increased 64% from the 4.4 million reported in the first-quarter last year. Our adjusted EBITDA margin of 8.8% this quarter reflects a slight decrease of 40 basis points from the 9.2% margin in the prior-year period. The slight decline in adjusted EBITDA margin reflects our decision again to keep the overall workforce intact despite the lower-than-anticipated revenue due to the disruption in treatment volumes from COVID-19. Net income was 4.1 million, an increase of 61% or 1.5 million from the prior-year period.

Net income attributable to common stockholders was $0.04 per diluted share on the basis of 99.7 million weighted average diluted shares outstanding compared to $0.01 per diluted share on the basis of 15.1 million weighted average diluted shares outstanding in the prior-year period. The improvement reflects the higher net income, as well as the absence in the current period of a warrant valuation adjustment expense related to the convertible preferred stock warrants that were in place prior to our IPO. Despite the impact COVID had to our volumes in the first quarter, we generated positive operating cash flow of 12.1 million as compared to operating cash use of 6.2 million in the prior-year period. The increase was primarily due to the continued improvement in our implementation processes with new clients.

We have historically seen a negative impact to cash flows in the first quarter following a client's launch of the benefit. This is because it usually takes a bit of time to get the payment processes running efficiently with new clients. In the first quarter, even though we added a record number of new clients and members, our continued improvements in integration solutions with the carriers mitigated the normal impact to cash flows in the first quarter of implementation by ensuring the remittance processes with new clients and their carriers were running smoothly. Cash flow this quarter was also favorably impacted by the timing of items that we highlighted to you last quarter, which amounted to approximately 6.7 million and included payments to providers and collections of our rebates receivable.

Turning to our expectations going forward. For all the reasons David discussed, we believe the fertility industry will recover more quickly relative to other areas of the economy that have been negatively affected by COVID-19. Based on the member and clinical activity we are currently seeing, we are comfortable that our minimum second-quarter results will be at least 45 million in revenue, 4.2 million in net loss and an adjusted loss before interest, taxes, depreciation and amortization of 1.3. However, although we are encouraged by the acceleration in the volume of appointments we are seeing, significant uncertainty remains as to the timing of the resumption of services at our network clinics, as well as how long it will take both clinics and patients to return to normal practice volumes and member utilization levels.

As a result, we aren't in a position to provide annual financial guidance at this time. I'll close with how we think about coming out of this situation even stronger as an organization. During this period, we have deepened our relationships with the clinics in our network by helping them understand what's happening across the industry. We have strengthened our relationships with our clients by being there for their employee during an uncertain and stressful time.

We have supported our members by helping them manage stress and uncertainty in this unprecedented situation. We continue to believe that all macro forces that have been driving our success remain in place. People will come away from the pandemic realizing that family building is even more important to them than it may have already been. Our superior outcomes and best-in-class member experience let our clients measure the return they are getting both in terms of the hard dollar cost savings we generate, as well as the higher employee satisfaction and retention. Our primary competitors, which are the carriers, are likely to be even more focused on their core business and less focused in retooling their practices to address fertility in the way that we do.

And despite the impact of this pandemic, we are well capitalized. Because of our business model, we aren't significantly impacted from a cash flow perspective. And we have, in fact, remained cash flow positive. As a result, we believe we are well positioned to successfully manage the impact of the pandemic on our business.

With that, we'd like to open up the call for questions. Operator, can you please open up the call?

Questions & Answers:


Operator

[Operator instructions] And our first question comes from Sarah James of Piper Sandler. Please go ahead.

Sarah James -- Piper Sandler -- Analyst

Thank you and great quarter, guys. I'm really encouraged by the conversations that you're having with new customers and the pipeline growth that you're seeing. Can you give us a little bit more color on that? Do you think the mix of industries might be better particularly? And I'm wondering if you end up more tech weighted that has a younger population and usually higher utilization count. Is that something that could be impactful as you grow in 2021? And just more broadly, how the scope of conversations you're having this year stack up to this time last year?

David Schlanger -- Chief Executive Officer

Sarah, it's David. As we said on the call, we are having a lot of very positive conversations. And the good news is that we've been diversifying our customer base across industries for the last several years. And even in this very unusual situation, there are a lot of companies that are really well positioned to emerge from the pandemic very strong and have strong businesses through it, and they're not just tech companies.

So certainly, we're trying to focus on all companies from industries that we believe are well positioned. So beyond tech industry, there's industries like consumer packaged goods and pharmaceuticals and financial services that are extremely strong and that are kind of business as usual from a selling perspective and are receptive to talking to us. So obviously, you want to be sensitive to a particular industry and company situation. We're doing that.

And as we said on the call, we're having success getting in front of prospective clients.

Sarah James -- Piper Sandler -- Analyst

Great. And the clarity that you gave on the trough in March at 15% was helpful. And then you said it's been improving week by week. Where do you guys stand now compared to normal this time of year?

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Well, it's a difficult number to put out there. I'm not going to for one reason. We've seen three sequential weeks of double-digit growth off of that trough and it's been continuing. But sort of the latest week, if I just gave you that number, sort of doesn't make a trend, right? But we have our expectations in terms of Q2 and sort of the minimal number that we put out factors in a reasonable expectation of continued acceleration, not at that same rate, but a reasonable expectation that we're real comfortable with based on sort of all the things that we're seeing, be it prescribing and dispensing, be it scheduled appointments, be it call activity, etc.

And so I think that's probably the most responsible answer I can give relative to details on what we're seeing.

David Schlanger -- Chief Executive Officer

Yes. The only thing I'd add, Sarah, is that, it's obvious by what we're seeing as we said in the prepared remarks that our members are anxious to get back into treatment. Their physicians are anxious to get their practices opened and both those things are happening simultaneously, and that's all driving that acceleration in member activity. So they're all good signs given what's happening in other areas of the economy.

Sarah James -- Piper Sandler -- Analyst

Thank you.

Operator

Our next question comes from Anne Samuel of JP Morgan. Please go ahead.

Anne Samuel -- J.P. Morgan -- Analyst

Hi guys, thanks for taking the question. I was wondering maybe if you could touch a little bit on what your providers are seeing in terms of patient apprehension about coming back into the office. And how quickly do you think that the providers can work through that backlog of volumes and maybe what that means for cadence in the back half of the year?

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Yes. So I'll take the second part of the question first in terms of capacity. Some of our comments address clinic capacity just in general, right? So one of the things that create capacity for U.S. patients and Progyny members is the fact that a good percentage of volume in our business, not dissimilar to sort of where U.S.

population resides, is East and West Coast. East and West Coast clinics do a significant majority of medical tourism from patients either from Europe or Asia. And that volume for some clinics is 20, 30%, so not insignificant. Obviously, with travel bans going on and everything going on in the world, that creates capacity in and of itself.

The second thing is that the clinics are prepared to do everything they can from an extended hours perspective in order to give confidence to the members as they come in for treatment in order to be able to handle the volume so that they spread out the hours that they're going to operate to be able to handle any backlog that they have to work through relative to the paused treatments that happened during this period. And lastly, their expectations are that their cash business will suffer a bit during this time period because even if you still have a job, but if you don't have coverage, you're probably going to be a little bit more conservative with spending money versus covered members. So their expectation is that the ramp back to normal levels will be, first and foremost, for them, from their perspective, covered members, then cash members, then medical tourism. So all of that sort of creates inherent capacity relative to the network.

As it relates to what else they're saying, all of them have different strategies around ramp up. All of them have different protocols, many of them common, but they're going to roll them out at different pieces to make sure that they don't do anything relative to building confidence with the members at their clinic. And so I would say the most common thing that we heard is that all of them either they're up and running fully today with their full suite of services or they're ramping up volumes based on the protocols and/or they are opening up their full suite of services within the next couple of weeks. But by quarter end, all expect to be fully operational with all of their services and have worked through whatever kinks may exist from the new protocols they're putting in place in order to be able to handle volumes.

So I would say that's probably the most common thing we heard and sort of giving us timing expectations from their perspective of what they believe is going to happen.

David Schlanger -- Chief Executive Officer

And Annie, as we said on the call, to help ease kind of patient's concern, they're making their protocols known. They're telling patients what to expect when they get there and how the doctors are and how the clinics are going, what steps they're going to go through to make sure that patients and staff have a safe experience. And they're also publishing them on their website. Yes.

Anne Samuel -- J.P. Morgan -- Analyst

That makes sense. That's really helpful. And then I guess on the expenses side, how should we be thinking about how much of your expenses are variable? You talked about kind of holding the line on some of your expenses that you're prepared for the recovery in volumes. But as your revenue comes down, how much of that is variable to serve as an offset?

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

You can probably impute it, right? When you think about what we put out for a minimum for Q2, it's almost breakeven on an EBITDA perspective. At a $45 million revenue line, our historical gross margin obviously is going to come down a little bit relative to this level of revenues. So you can probably impute it. We don't break the number out and haven't.

But at the end of the day, I think that what we thought was a meaningful data point was putting out essentially what is breakeven revenue for us, which is coincidentally what we are looking at for Q2.

Anne Samuel -- J.P. Morgan -- Analyst

Great. Thanks very much guys.

Operator

Our next question comes from Michael Cherny of Bank of America. Please go ahead.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Good afternoon. Thanks for all the color so far. I want to go back a bit to some of the comments you made about utilization and ramping capacity. One of the things that I'm curious about and dive a little deeper is, can you talk through some of the activities, not just from a time perspective and how long they're open, but are there any hindrances or barriers that your fertility network providers have to worry about? We constantly hear about the lack of PPE available for professionals, for patients.

Are any of those in place? And is there anything you can do on your side to help them as they think about reramping their practices beyond just helping them manage the patient flow.

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Yes. There aren't any concerns around PPE, so I'll start with that. We've talked to many and surveyed all of our largest clinics around the country. And so there is no concern as it relates to keeping their employees safe and their staff safe as they're providing treatment and having the equipment to do that.

So that's the first thing. They're not concerned around restrictions as it relates to supplies of any kind. They're simply concerned around making sure, which is why they're ramping it slowly from a patient volume perspective. They have the demand.

They're telling us they have demand, but they're scheduling it slowly. They're more concerned about making sure that their staff has operationalized all the safety protocols that they're putting in place and ensuring that those run smoothly before they continue to schedule more and more patients is sort of basically what they're telling us as a limitation short term that they believe as they operationalize and work through these protocols will create more capacity. It's in their control with how they do it.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

And then just one other question. I think you did a great job highlighting your strong liquidity and cash position. I know in the past you talked about evaluating M&A and other potential services you could look to bring into the fold. Is there anything that the organization's learned through the COVID outbreak and through the utilization dropoff you saw that opened your eyes about other potential services or activities that make sense to be within your business, whether it's other high-touch client model or anything to help providers? Anything that this outbreak has really uncovered in terms of where there's other holes across your channel that you think you can do a better job helping with than what's currently in the market?

David Schlanger -- Chief Executive Officer

Look, this is David. I think that the things that were driving our thinking a couple of months ago are still driving our thinking. The opportunities to both make our service more fulsome and stickier from both a member and client perspective remain similar with respect to women's reproductive health and many of the things we talked about before, supplemental mental health benefits for people going through this. Obviously, this has been a particularly stressful time, but those types of things, some of the vertical opportunities we talked about before where we're outsourcing services, we can bring in-house.

They all make sense to us. And I don't believe that the COVID situation really exposed any weaknesses in our service. Now from an M&A perspective, the COVID situation may have created some more opportunities for us given the fact that some companies may be more financially strapped than they were before and some face financial hardship. There may be some assets on the market that from a valuation perspective might start making more sense.

So that's kind of how we're looking at enhanced M&A opportunities. Are there some damaged companies that are damaged financially, but that still have a good service or product that might make sense.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

David, maybe just a follow-up to make sure. I might want to hone down even a little bit further. The whole world appears to be moving to some type of virtual care, telemedicine. Your patient care advocates have long been at the forefront of that.

Are there any other tools that you can see institutionalizing for them that just because of how much of healthcare being now delivered virtually that suddenly now becomes another opportunity for Progyny?

David Schlanger -- Chief Executive Officer

Look, I think you're right in that our PCAs and a big portion of our business model embrace the notion of kind of remote care very early. Over the last few years, we've automated many of those interactions that need to be automated and kept on a human level the ones that really matter and really move the needle from a member perspective and having a good experience. So whether it's the emotional support piece, whether it's really getting good clinical education and support around making the right decisions, I think we found the right balance between what you need to automate and what you should keep with the human touch. And the reality is that fertility treatments are always going to be delivered by doctors.

They're medical procedures. So that will be somewhat of a limited experience. But having said that, I talked before about enhancing the mental health support. We certainly, as we think about that, think about telemedicine and telemedicine platforms to do that.

So I don't know if that answers your question, Mike or not.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

It certainly helps. Thanks, so much David.

Operator

Our next question comes from Ralph Giacobbe of Citi. Please go ahead.

Ralph Giacobbe -- Citi -- Analyst

Thanks. Good afternoon. So it sounds like expectation is for clinics in your network to be up and running for the end of June. Was hoping you could just give us some sense or a rough ballpark of what percentage of the clinics are sort of open and available to see patients today.

Just wondering how much of a ramp from where we are today to get to sort of full by the end of June.

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

They're all open and available. They're just not open and available with a full suite of service, right? So many of them were open and available early in April and up until now basically doing telemedicine consults. And even those were partial consults because the diagnostic services needed for consults weren't being done during this time period. So when I talk about them being fully open with their full suite of services, it's really doing all treatments that they normally would do by the middle of May and then ramping up the volumes, taking into consideration the new protocols that they put in place by the end of the quarter.

And so that's probably the best way I can frame that. It's hard to say what percentage because they're controlling sort of the capacity, if you will, right now in terms of getting through backlog just by virtue of making sure that their protocols are operationalized as I mentioned before. They all intend to be up and running again by mid-May, but that doesn't mean that the volumes will be going through there like they normally see. It just means that at that point they'll be ramping up volumes in terms of what they're scheduling in anticipation of creating still confidence with any other members that come through there that talk to their friends, etc.

And so that's probably the best way to think about it. But in terms of being open, all of them are going to be expected to be open with a full set of services by the middle of May, but that doesn't mean the volumes will be there. And that's really the important part that we try to make sure that everybody understands.

Ralph Giacobbe -- Citi -- Analyst

Yes. OK. Fair enough. And then just wanted to ask about the pharmacy benefits really outperformed our model.

I think you talked about penetration getting up to 70% at this point. Any change in initiatives or focus there or appetite seems high, obviously. And then anything in the quarter in terms of maybe pull forward of some of that related to fertility benefits or is that not the right way to think about it?

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Yes. It is relatively high. So the answer is, the percentage of clients that we put out, not all clients are equal, some are larger, some are smaller. There was a pull forward and an earlier launch than originally expected for one of our larger clients that was an existing client that as an upsell took the pharmacy benefit.

That, combined with another large client that went live in Q2 of last year and cycling in Q1 of this year versus the prior year that had the Rx benefit, is why the increase in pharmacy revenue is as significant as it is.

Ralph Giacobbe -- Citi -- Analyst

OK, that's helpful. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to James Hart for any closing remarks.

James Hart -- Vice President of Investor Relations

Well, thank you, Andrea, and thank you, everyone, for joining us today. Please don't hesitate to reach back out if you have any questions, and we look forward to speaking with you again soon.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

James Hart -- Vice President of Investor Relations

David Schlanger -- Chief Executive Officer

Pete Anevski -- President, Chief Financial Officer, and Chief Operating Officer

Sarah James -- Piper Sandler -- Analyst

Anne Samuel -- J.P. Morgan -- Analyst

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Ralph Giacobbe -- Citi -- Analyst

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