Q3 2019 Earnings Call
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Now I'll turn the call over to the company's Chief Executive Officer, Mr. Nadeau tomato you make begin sir.
Thank you and welcome to everyone, who is joining the call today.
I like to start off thinking the nearly 1002, Buddy health colleagues, whose dedication and commitment to advancing the 2019 strategic objectives helped drive the results for the third quarter.
Despite this year have tremendous change for activity held our colleagues have continued to execute fiercely.
I couldn't be prouder of all of you.
Work this year has prepared us well for 2020 and beyond.
Today I have with me Dawn Zier antibody <unk>, President and Chief operating officer.
Adam Holland, our CFO as well as Tommy Lewis, our Chief transformation Officer, who leads our Investor relations and integration initiatives. He will be available during the question and answer restructuring following our prepared remarks.
I would also like to produce two additional key executives here today, Steve Janet <unk> President for Health care business unit and cure Crouse President of the nutrition business unit.
Well, we'll be available today for questions. So let me address Q3 a finding.
I am pleased with our results this last quarter and equally as important.
All the progress we have achieved across our businesses.
Hey, I will provide an update on the health care segments, including the eight be she'd be strategy.
Dawn will update us regarding the nutrition business and specifically the old each strategy introduced to you on the August earnings call and Adam well, then update you on the financials before I conclude with remarks.
Where we are positioning this company for the long term.
No for the health care business unit update.
Let's start with Silversneakers.
Hi, I'm very happy to report that we closed out this selling season on a high note.
As we continue to add new eligible numbers for next year.
In August we announced new contract wins Vueling, an estimated 600000, new members to starts the new year, even during the third quarter, which includes the tail end of our selling season, we added yet another 200000 eligible members from additional contract win.
Positioning us well heading into 2020, congratulations to Steven the entire sales too.
By the end of 2019, we expect to have 15.3 million eligible stillbirth silversneakers members.
Reinforcing our confidence in our stated goal from the last earnings call of approximately 16 to 16.5 million Silversneakers Eligibles.
At the end of 2020.
Oh sure our growth and eligible members reflects a collective group lovers, Oh, nearly 10000, plus Americans turning 65 every day.
More singers choosing Medicare advantage plans.
Successful client retention as well as a strong 2019 selling season.
Let me continue we shared with you last quarter.
The United Health will retain Silversneakers for a portion of the remaining individual lifes for 2020.
We believe the efforts employing throughout ABCD strategy are being recognized by United Health and others as they appreciate the power of the Silversneakers brands can be investments made in the enrollment and engagement strategy.
I'm also pleased to report that we now expect to retain the United Group lives for another two years beyond 2020.
So that's why I in 2019, the group business represented approximately 40 million and annual revenues.
Turning now to an update on our relationship with Walmart one that we are excited and one that we announced a few weeks ago.
Many health has partnered with Walmart in their newly launch Health Center.
Sure grieving creates a groundbreaking opportunity to deliberate health and wellness services at the community level.
Walmart State of New York facility, and provide affordable quality health care services to the Dallas, Georgia community.
Somebody helpful offer our programs, including best in class physical activity.
Nutrition, social engagement and well beamed programming in a community room at the Walmart Health Center.
For example.
We will host classes for groups of adults specialize courses to meet the needs of the Moody and workshops on topics ranging from healthy eating took goal setting.
This disruptive health care model.
It's consistent with.
Our commitment to both meet our members worth they gather.
And also with the same time address the social determinants of help those non medical drivers that contribute to poor held such as social economic status access to healthy food.
Nickel activity and access to quality care in health related services.
I like to take this opportunity as you may imagine.
These types of partnerships don't happen overnight they happened over years of relationship development and I'd like to take this opportunity to frame for Walmart health and wellness leadership team for recognizing the value derived from collaboration for two powerful brands can work together to address the I'm going.
Entities within our health system.
Well on the topic of Walmart.
The prime fitness offering signed with Walmart last April was launched on October 1st for the more than 1.5 million Walmarts associates nationwide.
We're very early in the process and pleased with the level support that Walmart leadership has provided.
Additionally, we are happy with the early sign ups and we will have more to report next quarter.
And lastly.
The third wave two this exciting partnership still will follow when we're further along with the prime rollout specifically, we will roll out a pilot for Wal Marts Associates, where we will be offering Nutrisystem D program to diabetic in pre diabetic associates.
Yes.
Let me know provide a quick you're an update on our total fitness center locations.
Since this leadership team assumed the headroom in 2015.
Growth our fitness partner locations has expanded from just over 13000 and 2015 to nearly 18000 today and we are pleased to report our 2020 renewal rates today is greater than 90% of the contracts had been renewed.
And over 700 net new locations have been added as well my same store Caroline and her entire team, who managed network and a very unmatched manner.
Well, having a broad based network is important driving members to those centers is the hallmark of our business model.
Allow me for a moment to provide an update on another innovative venue employee to enroll in engage members and that is.
We have been looking to offer at home fitness options.
As part of tribute he's helped ongoing ABCD strategy more specifically the be strategy around engagement.
We rolled out a series of workout videos available to members through Silversneakers Dot com.
This capability, which tested in early 2019.
The promotion occurring across the country over the summer months.
Early insights are showing that Britney on demand silversneakers programming into the home is actually an effective method of driving the enrollment and engagement aspects of our ABCD strategy, which simply put its true increased enrollment and Jim visits.
On average eligible participants watch just to videos online before activating their membership at a gym location.
Additionally, these new participants and reactivated participants are showing average vicious rates on par or slightly better than the population at large.
Well, we're still on the early side overall adoption.
We believe it the these results prove.
But our investments in digital complements our having a positive impact on the underlying business value proposition.
Please keep in mind.
This at home on demand enrollment intervention Tailgates all the other successful enrollment engagement interventions watch launch over the last 36 months such as digital in TV media.
Deployment of our territory managers across the nation.
Co marketing programs with our fitness centers.
The college safe incentive program.
In the outbound poll strategy from our call Center.
She old attitude goes all Roche lead to Rome, well all these interventions lead to the increase in enrollment and engagement.
Reiterating what we said in the second quarter call. Our preliminary 2020 projections for revenue growth in the health care business are somewhere between high single to low double digits driven by growth both in Silversneakers and pricing. However, we also.
Our showing growth and our whole help living business unit.
As I'm sure you can tell.
We're excited by the continued success in our health care business. That's what was the progress related to our combined offering and we see great potential for continued success going forward I'll now turn the call over to Dawn, who will give you an overview on the nutrition business you that Don Thank you Fernando.
The nutrition business units third quarter results came in as expected and Q4 quarter to date performance is on plan.
As we historically have done during the second half of the calendar year.
Our focus within the nutrition business unit sister preparing for a successful 2020 diet season.
Also executing the Oh east strategy that we announced last quarter.
As a reminder.
Strategy encompasses one optimizing the core business to support 2020 diet season growth and to expanding the business to launch new revenue channels that will diversify away from being single Lee dependent on the director spawn advertising based approach.
We believe the execution of this strategy will lead to stabilization growth and reduced volatility.
On today's call I'll highlight several areas, where we are making strides.
Let's start with the optimization or Oh component of our OE strategy, which consists of four major action areas first.
On the program innovation front, we've hit all our milestone in pricing program development for both Nutrisystem and South Beach diet as we prepare for the 2020 diet season.
Nutrisystem program is its most innovative since 2014, requiring significant e-commerce and food development, we're pleased to be about leader among our top competitors and weight loss efficacy and clinical based results and well into just the highest number of new food this year versus any of the prior six years.
And we have some very exciting news around the South Beach diet that we believe will draw a lot of positive attention to this brand.
As always we will share the details around the 2020, Nutrisystem and South Beach Diet program next month per our normal announcement cadence.
Second we have also continue to enhance our customer engagement technology.
Often referred to as Mark check or add back in the third quarter, we onboarded, new demand side and data management platform and completed the first favor phase of our customer data platform.
These technologies will enable enhance personalization across all touch points better sequencing of messaging and more precise cost management as we head intertwined Connie.
Third as digital marketing expanding reach is critical to our success in 2020 and with that in mind, we've invested in building out our digital team and resources and have achieved significant growth and profitable digital marketing spend and its associated fleets.
Strategy has been to reach new customers wherever they are with expansion and growth of our digital channels being a central anymore.
The rapid year over year acceleration that digital marketing referenced on the last earnings call has continued to build in the third quarter and we expect to expand further I just started 2020 to capitalize too bullish on the busy diet season.
Year to date, approximately 70% of our orders are coming through digital channels.
Now closely aligned with digital marketing, our app, which enhance the customer experience and improve engagement.
We have very strong engagement on our new me App, which was built to complement the Nutrisystem program roughly 80% of our customer use our action we have a 4.6 star rating in the App store.
Actions and uses per user up this year and revenue front from in App purchases is up double digits from last year.
Which are important indicators of customer satisfaction.
Of note our apps are free complements to our programs that are not stand alone as we believe our customers benefit from a holistic approach in which we supply the food the technology and the you must support necessary to achieve optimal results.
Additionally, the asked allow us to extend relationship as customers still use the apps and the content after moving on from their initial weight loss program.
And finally, we're also refining the creative messaging and approaches as well testing a number of new channels as we prepare for 2020.
Encouraged by the initial feedback and results as we are seeing some early.
Early successes and tend to add these new channels into our Q1 medium.
Come on this in our next call.
I'll now provide an update on some of our revenue synergies to date. The two business units are working closely together to try sport opportunities that capitalize on each business unit trends.
These initiatives will help us realize our expansion or east strategy.
We are leveraging our nutrition science include development capabilities to create new program, but new macro nutrient profile, specifically designed for seniors and to serve those with food and security issues separate from late.
To that and you may have seen our press release yesterday announcing that we will be launching our brand new wisely well line of products in January which will offer fully prepared meals that nutrient dense and made with care not only satisfy hunger, but to nurture and energized the body Beazer foods designed to fuel healthy living and will service our post.
Discharge programs and our food and security pilot launching in January .
This line of products will also serve as other senior care program initiatives that are being actively worked on which you will share more news on throughout 2020.
This represents a major expansion opportunity for us beyond weight loss and differentiates us from our traditional set of competitors, giving us more breath and more beach.
In addition to the Walmart pilot that Sonata mentioned earlier the amount of food security pilot plant in two markets for January 2020 is on track and commitment from Humana is high.
The pilot will leverage the combined capabilities of health care providers case management.
Well delivery in nutrition counseling as wells referral to local social media services capabilities to deliver innovative streamline workflows and delivery solutions to food and secure health plan. Medicare advantage members were also in conversations with other health plans as well.
In closing I am pleased with the nutrition business units performance this quarter and the progress we're making on the revenue synergy from.
On track related to our inventory planning 2020 diet season preparation and we are executing on the only strategy.
I'll now turn the call over to Adam for financial assay.
Adam.
Thank you Dinardo and go on and good afternoon, everyone.
Similar to last quarter, we provided supplemental financial information on the Investor Relations page of our website that will eight understanding of our Q3 results in 2019 guidance.
Further. Please note today's press release includes non-GAAP reconciliation tables with related explanations.
Turning now to our third quarter combined results.
As to not only Don mentioned, we are pleased with our results in are tracking within our annual guidance communicated in the August earnings release.
Total revenue for the third quarter 2019 was $303.9 million, an increase of 100.6% over the same period last year.
Net income was 13.9 million compared to 25.4 million in the third quarter of last year.
Adjusted net income in Q3, 2019 was 22.2 million compared to 25.4 million in Q3 last year.
Adjusted net income for the third quarter excludes certain pre tax imposed tax items incurred in connection with the acquisition of Nutrisystem.
Q3, GAAP earnings per diluted share was 29 cents with adjusted earnings per diluted share a 46 cents.
Adjusted EBITDA for Q3 in 2019 was $56.8 billion compared to EBITDA of 36.6 million last year.
This year's amount includes the benefit of approximately $2.9 billion realized cost synergies during Q3.
Moving on to health care.
Our healthcare segment continues to perform well the segment generated third quarter revenues of $160 million increase of 5.6% over the same period in 2018.
Silversneakers revenue represented 78% of segment revenues were $124.6 million, a 2.2% increase over Q3 of 2018.
Total silversneakers visits for Q3 of 2019 or 26.2 million Oh, 1.3% to last year and this is despite the fact, we started the quarter was 700000 fewer eligible lives.
In addition of those visits more visits were revenue generating this year versus last year.
We ended the quarter with 15.2 billion eligible silversneakers members with approximately 3.6 million enrolled in a 7.9% active monthly participation rate during Q3, an increase of 30 basis points over Q3 last year.
Prime fitness accounted for 19% of total health care segment revenue or $30.5 million for the quarter increase of 20.2% over the same period last year.
Primes growth over Q3 of 2018 was primarily driven by 16.4% net increase in member pay crime subscribers ending the quarter with approximately 342000 subscribers.
Our health care segments non-GAAP adjusted EBITDA for the third quarter total $39.2 million for 24.5% of segment revenues compared to $36.6 million for 24.2% of segment revenues for Q3 last year.
This year's amount includes approximately $700000 benefits from cost synergies.
Turning now to the nutrition segment.
Third quarter revenues for the nutrition segment came in at $143.9 billion, a 9.6% decrease compared to the same quarter last year.
This decline was primarily driven by the decrease in the DTC business, which generated $134.6 million and revenue.
Within BTC.
Q3 revenues from customers and their initial diet cycle were down 14% year over year, primarily due to fewer new customer starts.
Q3, 2019, reactivation revenue, which made up 39% of our total DTC revenue was up 2% year over year, helping offset some of the decline in the new customer revenue.
Rounding out Q3 revenue the retail channel contributed $6.3 million and revenue from QVC was 2.9 billion.
Similar to last quarter, the nutrition segment gross margin as a percentage of revenue showed improvement compared to last year about balancing promotional offers and optimizing supply chain costs.
And as expected marketing expense increased 3.5% to $44.5 billion in the third quarter.
Additionally, we incurred costs related to our recently announced OE strategy during Q3, which accounted for about $1 million of incremental expense during the quarter.
Our Q3 adjusted EBITDA for the Nutrition segment was $17.7 million or 12.3% of segment revenues. This amount includes approximately $2.2 billion and benefits from cost synergies.
As a reminder, the nutrition segment historical quarterly EBITDA cadence typically delivers the largest contribution during the second quarter each year.
This year sequential decline from Q2 to Q3 landed within our expectations based on historical pattern and the new OEE investment activity underway during the third quarter.
Turning to our balance sheet in conjunction with the closing the acquisition of Nutrisystem or March Eightth, we entered into a credit agreement. The provided Tivity held senior secured loan term loan a and term loan b facility totaling $1.18 billion as well as a 125 million dollar revolving facility.
I'm pleased to report that as of todays call, we have repaid $105 million of the initial amounts borrowed under the term loan facilities.
Because we have address all required amortization payments until March of 2021, we do not expect to paydown material amounts for the remainder of 2019.
We expect that meet our objective of achieving a leverage ratio of less than three and a half times by the end of 2020.
Turning to our outlook for 2019 as noted in today's press release, we reaffirmed our 2019 guidance provided in August .
This guidance anticipates year over year growth in our fourth quarter health care segment revenue driven.
By growth in our Prime fitness segment, which includes Walmart.
The nutrition segments fourth quarter revenues are expected to decrease year over year and a high single digit range from declines about DTC in retail.
The reaffirming annual guidance anticipates fourth quarter combined EBITDA to benefit from a better healthcare segment EBITDA margin as compared to Q3, driven by stronger margins in our prime business and reduced marketing and operational costs.
We expect fourth quarter nutrition segment, EBITDA margins to improve sequentially from Q3 to Q4 due to improving gross margin trend and lower marketing expenses as a percentage of revenues.
Finally, we're on track to deliver 2019 cost synergy savings of $9 million to $12 million.
Fourth quarter will be the first full quarter for a number of initiatives implemented during Q3, which includes labor synergies from excess of highly compensated employees facilities call Center operations and other vendor savings I will now I'll turn the call back over to Donato that auto.
Thank you John and Adam.
Allow me know to briefly touch on the future activity held.
In the last year, there have been scores of articles published around social determinants of health ranging from the acknowledgment that food as medicine, loneliness, and social isolation are as toxic as smoking 15 cigarettes per day.
In activity can contribute to poor health outcomes.
All these specific social determinants of health have been validated as having a major impact on the number of self reported healthy and or unhealthy dates.
We believe Tivity health has a great platform to address these three critical areas for our health plan partners.
The members and their caregivers.
Our holistic approach encompasses nutritional intervention and management.
Physical activity community engagement and behavioral modification.
We have long been and continue to be the industry thought leader on aging rural health and loneliness.
Our health oriented consumer brands offer nutrition fitness and social connectivity that allows us to address the social determined is upheld in are truly unique way.
We are long recognized as a leader in helping the aging consumer live a more healthy life through activity and our own studies support that increasing physical activity can indeed, lower loneliness and improve the number of healthy days by as much as.
10%.
We should firm on three consecutive years, what the net promoter score of 81, signifying a strong brand trust as well as consumers support and permission to expand beyond physical activity and to address nutrition as.
Wells loneliness, and social isolation, not only to the senior population, but also to or younger demographic as well.
Our acquisition of Nutrisystem.
Our thought leadership on aging and loneliness and social isolation.
And our history of collaboration and partnership.
Our key enablers and supporting this movement to address healthcare and not sick care.
So let me make a crystal clear.
Typically hope is an active player and addressing social determinants of health.
We believe there's no other company today, well position to address through a combined offering as well as a strong platform of health plan partners.
Following key areas, all of which impacts healthy dates and that is physical in activity, social isolation and loneliness and nutrition.
In closing.
The following key points.
Summarize our last quarter and year to date progress.
Just eight months post close of our Nutrisystem acquisition, we have number one.
Gained solid momentum and our health care business.
And two we have launched for health plans, a combined product offering gaining traction and then you have heard today, we have gained traction both with our current and new partners all of which is leading to further increase in enrollment and eligible lives.
And thirdly, we have position our nutrition segment with a focus on the right strategic imperatives to return that business to grow.
And fourth.
We have made the necessary investments in the last quarter within the nutrition business unit to ensure positive momentum entry into the 2020 diet season and fifth.
We have paid 105 million.
Probably Tory loan payments as of September Thirtyth, nearly 15 months ahead of the required schedule.
This is clearly a result of the company's ability to generate strong cash and.
A big Shout out to the great work, our finance team has been doing in managing cash and paying debt ahead of schedule.
And six.
We have extra treated on the collaborative partnership with Walmart with the potential to leverage our highway of members as well as their employee population around a more holistic approach to managing health care and severance we know have eight.
Collective suite of intervention programs driving enrollment as a result of the ABCD strategy positioning us well to deliver on our preliminary 2020 projections.
Hey.
We have executed fiercely.
To deliver on our cost synergies a key focal point to this organizations strategic imperative in 2019.
And lastly, we are positioned ourselves well to both execute and expand on the short and long term revenue opportunities in 2020.
In closing none of the key points I just.
Establishments are achievable without a dedicated team.
Oil customers and collaborative partners.
As we approach the Thanksgiving day holiday, Let me Express my sincere. Thanks to all of you made this company successful.
Well now take your questions.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press, the pound or hash key.
Please standby, what we compile the cumin a roster.
Your first question comes from Alex Fuhrman from Craig Hallum Capital.
Great Hi, everyone. Thanks, very much for taking my question.
About the yesterday's announcement about the new nutrition, offering wisely, well I'm, certainly sounds like a big opportunity and kind of a continuation of of integration here in the strategy you've been talking about for some time I'm just trying to get a sense of what this business could look like is it your expectation.
That it will be up and running at the beginning of 2020, and then just thinking about the marketing model. Obviously, the Nutrisystem brand is a very you know TV heavy marketing program or are you anticipating a similar marketing strategy for wisely, well or or you know it sounds like.
And is going to be some some insurance paying as well is that going to be do you think the bulk of your new customer acquisition. Just just curious how you're thinking about that how we should be thinking about that what it can do for your business.
Sure, let so have gone answer that.
Hi, Alex how are you. So this is gone.
Great. This is our first rollout of something that truly is separate from weight loss and takes advantage of our food science capabilities on what we what we've talked about so far and how we're using it we're going to be using it in three different ways. It's totally separate from the Nutrisystem brand, but it will be used for our post discharge.
I will ask that we have happening in January it will be used for our chronic condition pilot and then we see an opportunity to use it for our caregiver strategy, which will be something that we'll be talking to more down the road. The first two things that we're talking about they're not direct to consumer there are more at the business to business plays and will not have any marketing or.
Our type thing in the traditional way that you think of Nutrisystem against it but as we start building out more programs around kit caregivers or a wrap around CIT post discharge after the.
Reimbursement would and we could see some more of our typical marketing efforts, but for now primarily will be through the b to b channels with rollout from more detail for you to come later in 2020, we're not giving any revenue projections on this at this time, it's a brand new program.
Okay that makes sense and then I guess with.
Sounds like there's going to be less marketing on that business I mean as it as it scales in the years Dicom, what would you anticipate it being a similar overall EBITDA margin to the core Nutrisystem business.
I think it's a payouts as Adam I think it's probably too soon to fill in that quite yet but.
More to come as Don said, we'll get into the nuclear.
Okay that makes a that makes a lot of sense and then if I could just that one on the balance sheet you guys to pay down a lot of debt early you just talk about what the factors that that you've been looking at over the course the year that that have guided that decision that would be helpful for us to think about thanks.
Yeah sure Alex.
A couple of things first we want to make sure that we don't put at risk either the businesses in terms of capital investment you know it's important to feed both of these businesses. Both businesses are healthy businesses, albeit they are capital light by nature, we want to make sure that we're investing appropriately for the short term in a long term, which we are that said.
The team has been focused on utilizing available free cash flow to to pay down debt. This is something we committed to very early on and was our commitment to management that while we are open options. This is the thing we want to focus on first and beneficial in getting the balance down getting leverage ratio down getting interest expense down for next year.
And that's a that's three that really the reason that we've been focused on it and a complement the team they're continuing to manage working capital improve working capital profile for both segments over this year I think we'll continue to do so as we move into next year and get a more efficient balance sheet.
That's great. Thank you very much everyone.
Your next question comes from David Mcdonald from Suntrust.
Hi, David.
No guys.
Couple of quick questions. One just I'm just just on the cash flow if I look at free cash flow for the year. Its running well ahead guidance hasn't changed is there anything we should think about in terms of just timing of working capital and.
He just anything to call out there.
Yeah, It's a great question.
Probably the biggest factors if you look at inventory levels as they would typically build from Q3 Q4 in ahead of the diet season, that's going to be one of the one of the influencers that could bring that up that year to date number down to the range, we've given guidance.
Okay.
Donato can you just talk about what the Silversneakers business continues to cut outperform in terms of wins.
And I've got to imagine when you're chat and with some of these potential clients nutrition is being mentioned and potential bundled contracts.
Can you kind of picks inside the room, a little bit in terms of level of interest from some of the folks who signed up to silversneakers and the ability to cross sell that.
Absolutely I'm I'm going to answer than I want to have Steve.
Answered as well so first of all its not just nutrition you know it has been the trifecta.
It has been the loneliness and social connections if in fact, and we know now that there are 9 million seniors who are.
Food and secure 7 million are living in poverty, if you're living in poverty and your food and secure you also have unfortunately loneliness of Simpson.
And so what we have learned in the health plan and you know over the last 12 weeks I probably have been with at least six or seven health plan seals without question. The way. They are viewing tivity. Today is that you already have these relationships, which seniors you have this trusted brand.
They want to hear from you and so as Steve is out there showing what Chivas now hearing is that there is dialogue not just in terms of a renewal for silversneakers contract or a interest in coming back because they may have left us there is a dialogue around these three key areas she already or the 100% the novel So the comps.
Decisions have decided to change we have when we talk about it everybody understands the value of Silversneakers and the excitement that comes along with that our ability to engage members, but now the conversation really is around taking more of a leadership role in regards to social determinants belt, where that is all going so the.
The low hanging fruit is there's clearly conversations around post discharge meal delivery, which will have and we have the ability to do that and then the conversation really turns around how do we take all of our components and address with their objectives are you trying to manage their Medicare advantage population.
And I think a lot of that unfortunately, we're writing on the bandwagon of a lot of policy changes that have happened over the last 20 436 months, you know, let's be perfectly honest silversneakers shouldn't become successful just because of our.
Selling efforts the Medicare.
Changes in 2003, the Medicare Modernization Act all that help to drive success and the chronic care Act that was past two years ago. The changes in CMS with respect to post discharge all that is tailgating and all this information right now my gosh in Somebody's, New York Times, a whole article on loneliness and social.
Solution, we were one of the first called that out so the dialogue is not about whats renew our silversneakers contract. The dialogue about how can you be a partner in all three venues that we see as critical to bring in health care costs down and that population.
Okay. Just a couple of other quick questions did not have you mentioned in your prepared remarks.
Told fitness and folks watching these videos at home should we think about that is something that right. Now is more of an engagement theater and over time you could be paid for are you being paid for those as regular visit just just how do we think about that.
I think it's all the above I think we started a quite frankly as another venue to have if you will remember the flu season, a few years ago.
You know that caught us by surprise and we kept on asking ourselves could there be another venue at when you have something like the high flu season epidemic of a few years ago could you have an alternative to engage these members. So we started off first by can we get this up and running and be reimbursed for we're not at all putting that.
To the side, but it was very interesting what we found in the study is that it can also be used to get these individuals to sign up.
The gym and gold there and participate in the workout so.
We'll have both venues as part of the future business model.
Okay, and then just last question.
You mentioned in terms of the new product rollout on the nutrition side that commitment from Humana is I.
You know is is there any additional detail there just in terms of this is on a product that they're looking for or any additional comments in terms of other payers, who may be looking at this in a meaningful way.
Oh I want to you know specifically call out Humana and what they've done with the both go initiative. We could not have had you know we couldn't have a better partner could be perfectly up from Q1 that understands that.
What we bring up he is an understanding of how to deal with juniors. What we bring is an execution focus and so this is you know a pilot that's moving into 20 or 20 and the same thing with Walmart very similar kind of pilot around can we define how do you price. It how do you define the product how do you define.
And what name coal and quite frankly, what are the outcomes, but we're not limiting it to just Walmart humana, but that should you know is yogi Berra my favorite philosopher one so you don't want to make the wrong mistake, we want to be able to know when we go to that schuchat opportunity. It should have to be a pilot we should bring if you will have the less.
Has learned out of these pilots and begin to have actual contracts going into 2021.
Okay. Thanks very much.
And as a reminder to ask a question press star one on your telephone.
The next question comes from David Sip low from Jefferies.
Hi, there good afternoon, and thanks for the questions.
Sounds like the health care business had some some positive updating and good results in the quarter. I think you guys had mentioned, adding on another 200000 eligible lives I'm curious to to kind of square the math on that because I think you're you're 2020 expectation is still roughly to the 16 to succeed and.
<unk> million, so was that 200000 already contemplated in the 15 to 16 half million and and can you give a little bit more color on sort of the source of that 200000 was was that want to count that sort of came in late I would've thought you guys, maybe what I've known by June ahead of the bid season, and so forth. So maybe just walk us through the progression there.
You know as a chip used to say they love it chip this is of mosaic.
That you lose from the left pocket and you gain in the right pocket.
And what we have now is Steve thanks to his team and his efforts. We had 800000 eligible life's that were new obviously, we've lost a few lives as well, but net net we are staying within that range that we shared with all of you last August will end 2020 between 16, and 16 and a half.
That's the mosaic that has happened for as long as I've been shield This company and for as long as we've had silversneakers. Each year you will lose markets are you may lose a customer, but the sales folks go out there and they expand the markets and they also are fortunate to win customers back and that's 800000.
Total lives to your question about as a 200000 represent one customer specifically or no.
Okay, great. Thanks, Donato appreciate the comments about the fitness partner locations and how you guys have continued to expand those and drive those higher.
I guess I've gotten a few questions from investors about a partner in Tennessee, where you guys can come to agreement in terms of of extending that next year and it sounds like the Rob there might have been just a large price increase that that provider wanted to have along.
Those lines at the question comes as well how much pricing pressure to you guys space on a regular basis and the business from the gyms and fitness centers.
Perhaps wanting more as they as I look forward and then to what extent are you guys able to a pass those price increases onto the insurers are there step up contract vehicles, and the contracts or what sort of how how willing as the insurer willing are they too to accept the pricing.
Creases.
It's one of your yes sure David there's a lot lot in that you've made on package some of that some of the pieces.
To start off maybe where you ended.
One of the advantages look we have.
Yells that come and go inside the network every year. It is not as static number of 18000 Joe.
And we're constantly moving folks in and out of the network.
Sometimes its voluntary sometimes involuntary and one of the advantages of having a large network like this especially you know what I'd say like Tennessee is that when you. When you lose members you're able to are you lose deals are able to redirect those silversneakers members to other locations and you're adding new locations along the same way and that's one way we're able to.
No control margin pressure to some degree and there is always pockets of pressure there always has been but we've been affected the managing that by growing the at work and working with our partners who are.
Better suited to meet with the way that are in May plans, one a payout.
And I think the one thing I would answer that is that listen we are focused on you know now that we have been able to really define and get the company more stabilized since my arrival as CEO four years ago.
The first thing was that we had approved to our health plans that we could move the needle and getting people enrolled and engage check that box off we've done that.
The second is that we had to demonstrate that the name silversneakers matters to the members and the fact that you see health plans coming back to US is indicative of their understanding that when you lose silversneakers brand you're going to have some you know havoc in your enrollment membership now what we are.
Focused on is demonstrating health outcomes and you asked a question can you pass it on to health plans I believe we can as long as we can start to demonstrate that what we're passing on to them is not coming out of their profit bucket that we're passing on to them is coming out of their medical loss ratio bucket that were really able to demonstrate reduction in.
Hospital visits improves the number of healthy days reduced the number of unhealthy days. This is all new initiative that has really blossomed over the last 14 16 months I am confident I believe as we go into 2021, Steve is going to have some outcomes to that he will be able to take two is health care plans.
And by the way the other thing to keep in mind is that I think we have to do a better job. Obviously I'm excited by the Walmart partisanship set I think that we have to also think outside the box where to members want to gather.
And the uniqueness about the relationship with Walmart is that as you know they have what a traffic of 150 million consumers traffic flowing through there stores and having a silversneakers.
Class potentially at every store could also be a nice way to balance if you will the pricing pressure makes sense.
Yeah, that's great. That's really helpful last one for you to not so as you guys. Obviously have a lot of new things that you're on the cost, but right now some pilots everything from Walmart the to wisely, while that you just launched I'm curious three year lens. What what are you. Most excited about from a revenue opportunity standpoint that that just might have the biggest bang for its.
Back over the next three to five years.
Yeah, I think I'd answer that in three ways I think that when you look at and that's why my closing remarks was that.
There is a new revenue stream on the horizon, which is that over arching social determinants of health.
And I'm excited there because you will just take for example, you know foot ulcers foot ulcers for all the health plans, probably as a five to 7 billion dollar cost.
When you look at foot ulcers, it's associated to elevated hemoglobin when she gets associated to diabetic patients and yet we have an opportunity most of the hemoglobin. One she is associated with the reality that you're not eating correctly or you're not eating the oil or you're not active and I think the two verticals we have the.
Nutrition vertical and the physical fitness vertical feeds into this whole new revenue stream, but quite honestly I'd be remiss to say that in each one of these verticals in Steve's business, we're making the investments that you've seen this year, that's driving more to enroll and more to get engaged and I am.
Clearly optimistic there I also think no on the nutrition business, you listen I trouble, all the time and I see two trends as I travel people are getting bigger not paul or wider and which is the population is aging and I think the investments of innovation.
Under cures leadership and drones leadership, we're making those investments that quite frankly, I think we'll begin to enter into the diet season with momentum for growth. So I think those three areas or what I get excited over.
Very good thanks much.
Your next question comes from Ryan Daniels from William Blair.
Hey, guys. This is Nick speak out in for Ryan. Thanks for taking my questions I'm I guess it started off.
For this wisely well product I was wondering how you are going to go about marketing that like would that be something that's much more focused on the consumer or is there going to be like a pretty big.
Sales effort toward kind of health plans.
Well, let me let me say this on a health care are coming in as you know everybody forgets and you know maybe it's easier to forget because we don't talk about the years of having nearly 70 health plan customers.
And when you look at the health plan customers you know the reason why Steve was able to bringing to.
Post discharge contracts is because when he's in front of them. He's able now to talk about the entire portfolio. So instantly we have the sales organization prep and prepared to now talk about this relative to the interaction they have with their health plans cure or do you want to maybe take the second part in terms of how we can extend.
Obviously, well into the non health plan seconds.
Certainly thank you I think John touched on briefly but at this add to it. So yes at the beginning its going to be primarily due to be and b to b to C and and then as we get going we do see there's opportunity.
To expand into DTC, primarily through contacts that we need and through the b to b, So people, who want to and what they received for post discharge or for caregiver.
Got you and then would that be mostly through like online orders similar to under system.
That is nowhere in designing it though first we have to start with the beat it being the b to B to C.
Got it thanks, and I guess.
Sorry.
Also keep in mind and again you know there's so much that has changed in the last four years of we forget to acknowledge it.
Well you design, we have been building up our Silversneakers Dot com, we now have nearly over 4 million members. When I became CEO . We had 500000 members and that is also going to be another channel vehicle.
To be able to reach that population we have been telegraphing. If you will that we have 16000 fitness centers.
Who not only deal with the Tivity help prime and Silversneakers population. They also deal with a broader membership populations. So partnering with them will be another channels. So I am firm believer.
You know think big start small actually to quickly right now looks execute with the health plans and this will begin to build out over the next six to 18 months.
Got great. Thanks, and then I guess kind of going off of your comment about Silversneakers online I guess mobile there too I know the path you talked about potentially being able to monetize.
When Silversneakers members will do a mobile class or an online class and kind of getting their plans to pay for that I was wondering if there's been any sort of updates there. That's an area you still look at.
Kind of accessing in the future.
So you're going to take Thats not yeah. So it's not a said what we're really doing is when we started this program be going in theory was.
We can build for this and that we thought it would primarily just be somebody who executed and viewed as video at home. What we've found is that people are viewing to videos and then they are actually going to the gym and they're actually engaging at the same level that a full participant what our hypothesis is that we believe people are looking at the videos and going.
No what I can do this it's not intimidating is I thought it would be which makes it going into the facility a lot easier. That's the approach going at once we continue to do this we will look at all options, including do we just go with the gym visits or do we built for something upfront, whereas our combination thereof, we have to get a little bit more data as we continue to progress through it.
Yeah, and if your question, Yes, you know.
Had conversations with health plans I have discussed with you know various health plans and obviously.
There is interest should we could not be more aligned to what the outcome and what's the goal is that is to get people active.
And so this was like a huge finding and now it may be used.
As a vehicle to get people at the gym, but that said to seize point, we're not going to stop exploring whether or not there could be a direct payment will continue to explore that.
Got it great. Thanks, guys I appreciate you taking my question.
Your next question comes from just a catastrophe from Piper Jaffray.
Hi, Justin Thanks for taking hi, Thanks for taking my question I'm on for John Weiland, just hoping to understand I'm, a little bit more detail about how you guys are monetizing the new me up today on and then just any opportunity to expand.
The extent of that monetization and <unk>.
Perfect Akira.
Yes, Hi, this is here and so today newly is built and run as a complement to our food delivery weight loss program. So it's a tracker and it's the way that we share content and and whether that's advice recipes et cetera, and it's also.
Way that we so to increase the revenue per customer and we will be looking in the future and ways that we might take new knee and as a way to meet people, but right now the complement and it's a way of increasing revenue basically for each customer.
That is that.
I think that's perfect. Thank you okay. Good.
And there are no additional questions at this time I will turn the call back over to the presenters.
Well. Thank you all in I do appreciate the time on the under sleep day and look forward to again, a connecting with all of you and wish you again, a happy Thanksgiving.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.