By Sam Boughedda
Spruce Point Management released a short report on Progyny (NASDAQ:PGNY) Tuesday, stating that they see a potential 60% to 80% downside risk to the company's current share price.
Progyny, which went public in 2019, is a fertility benefit manager that offers structured fertility insurance benefits targeting self-insured employers.
Spruce Point said a previous research report on Progyny from Jehoshaphat Research that identified a "relatively narrow range of accounting issues related to revenue recognition, bad debt expense, and stock-based compensation" was compelling and consistent with its 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," Spruce Point states.
Spruce Point claims that the top three PGNY executives and 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."
The firm also highlights additional accounting concerns related to revenue and expense recognition in its report, 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," Spruce Point adds. "Moreover, we have identified numerous headwinds to PGNY's growth in 2023 which suggest the company will likely miss current Street expectations."
"PGNY's marketing claims, and its outcomes data in particular, are highly problematic," argues Spruce Point.