Q1 2020 Earnings Call
[music].
Good afternoon, and welcome to they typically health first quarter 2020 financial results Conference call. At this time, all participants are in listen only mode.
After the speakers presentation, there won't be a question answer session.
I ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
The extent any non-GAAP financial measure is discussed in today's call. You'll also find a reconciliation of that measure to the most directly comparable financial measure calculated in accordance with GAAP in today's news release, which is also posted on the company's website.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding Tivity helps expected quarterly and annual operating and financial performance for 2020 and beyond.
For this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statement.
Without limiting the for billing the words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
Our hereby cautioned that these statements may be affected by the important factors among others.
Fourth antibody helps filings with the Securities and Exchange Commission and in today's news release.
And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.
The company undertakes no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.
And now I'll turn the call over to the company's interim CEO, Bob correction you may begin sir.
Thank you operator, good afternoon, and welcome to everyone, who is joined the call today.
With me today are Steve Janetschek Health care business unit President.
Tommy Lewis, Chief operating officer, and interim nutrition business unit President.
And Adam Holland, our CFO.
Steven Tommy we'll share with you more detail about how their business units have performed at adapted.
Adam will cover our first quarter financials.
These are unprecedented times.
I wanted to make sure to provide ample color around how tivity health is responding to the health and economic impacts of Kuroda virus.
Tivity health has worked to adapt during these times in order to provide our customers with innovative solutions.
This resilience has allowed us to maintain and enhance our business as well as serve our customers during one of the most difficult times in February.
We had a solid start to 2020 for both our fitness and nutrition businesses.
As Corona virus began to significantly impact businesses in mid March we were quickly able to adapt our go to market strategies.
And that action combined with our initial strong performance.
Let us to deliver a solid Q1 performance.
While we face the challenges presented by this emerging pandemic I could not be more proud of the creativity and compassion shown by our colleagues.
Tivity health has been nimble delivering solutions on both sides of our business.
We have worked with our health plan partners to keep their membership safe.
And active.
We've also been able to better meet the needs of our nutrition customers. During this time.
This was all accomplished while transitioning 1000 colleagues to work at home without impacting our service to customers.
On the fitness side, we have quickly expanded our digital offerings and delivered and enhance the virtual exercise class platform.
This will be a part of our core offering even after the pandemic subside.
Tivity health has shown that Silversneakers prime and whole health living are focused on health activity and social engagement.
Even if traditional channels are disrupted.
In addition to our virtual exercise platform.
We are also delivering three senior exercise programming on Facebook live averaging 50000 participants per session.
We view this as both an important public service.
And that means of expanding the reach of the Silversneakers brand.
On the nutrition side, we've delivered offerings that are more focused on our nationwide capabilities to deliver food directly to customers homes.
This is important.
As people have been sheltering at home and avoiding public shopping experiences.
We've also added greater variety to our product bundles, which has been well received.
And focus more on all card items nutrition bars.
And shakes.
As a result, we've been able to build on a good Q1 with April sales consistently meeting or exceeding expectations.
We have taken action to strengthen cash preservation and cut costs to reduce the financial impacts of Corona virus.
These actions have included difficult, but necessary furloughs of approximately 125 colleagues.
As well look salary cuts of 25%.
For another 125 colleagues, including all executives.
Additionally, the board will forego cash compensation.
These actions are planned to continue for at least the next four months and they get August.
We believe these proactive cash management initiatives will be additive to cash by over $40 million for 2020.
Including taking advantage of applicable tax provisions.
Of the cares act to further enhance liquidity.
We will continue to be diligent in our actions to ensure the long term success of the company.
As noted in our press release, the board has decided to explore strategic alternatives for the nutrition business, including a possible transactions.
And has engaged lazard as its financial advisor.
Since this past February the board has been engaged in a comprehensive review of activity helps long term strategy.
Including the company's core capabilities.
And the ability to best deliver increased shareholder value through actions that would improve our balance sheet at best focus our team on the creation of value.
Our nutrition business delivered results ahead of our expectations this quarter.
However, we believe there as unrealized value, which is what drove this decision.
There are of course, no guarantees of any particular outcome of this strategic alternatives exploration.
In the meantime.
We will continue to operate nutrition business and maximize all opportunities to better serve our customers grow our business.
And prepare for a successful 2021 diet season.
Importantly, the company's search for the next CEO activity health is well underway.
And if it's a bit identified and the interview process is nearing completion.
We've been pleased by the interest in leading our company from a group of highly qualified individuals.
We expect to successfully conclude this surge in the near term.
Before I turn the call over to Steve I want to once again emphasize that our results from the first 10 weeks of Twentytwenty.
And for Q1.
Reflect the strength of our business segments and the ingenuity I have seen from our team showcases the power of our brands and partnerships with our customers.
Now I'll turn the call over to Steve Janet check to share more details about the healthcare business unit.
Dave.
Thank you Bob as Bob mentioned, we had a solid start to the first quarter.
Appear to the same period in 2019 January to February we saw significant positive increases to key metrics for our Silversneakers and prime businesses.
For Silversneakers revenues were up approximately 14%.
Participation was up to 8.5% in 2020 compared to 8.1% in 2019.
And visits were up approximately 16%.
Prime revenue was up 18.5%.
And prime subscriptions were up 9.5%.
Starting in mid March however.
We began to see the impact of the pandemic on our business.
Partner locations began closing across the country.
And before the end of the first quarter nearly all locations were shuttered.
Orders for people to stay home.
When those orders were issued.
Our team members pivoted to identify alternative ways to keep our senior population active while ensuring their safety I'll walk you through some of these.
Silversneakers launched a virtual flex classes hosted by instructors and our National network.
When we started this about a month ago.
We had only hosted 500 virtual events in our history.
But to date, we've hosted over 7000 events.
Virtual classes keep whole bounced silversneakers members safe from exposure.
While maintaining a live instructor led experience with the energy and social interaction that they know and enjoy.
We received numerous emails thanking us for continuing to provide silversneakers members with an opportunity to stay active and connected.
The strength of the Silversneakers brand is evident in the popularity of our Facebook live events.
We have averaged over 50000 participants per event.
With over 1.3 million total views to date.
Echoing Bob settlement, we view these three events as a public service as well as an opportunity to strengthen.
And expand the reach of the Silversneakers brand.
We're pleased that our health plan partners and others have look to Tivity health for creative approaches during this time.
When the pandemic hit some of our health plan partners went to work ensuring that seniors would continue receiving food while home down.
I'm proud to say that we were ready and able to support our health plan partners with their initiatives by developing healthy bundles of meals snacks and shakes for home delivery.
As a result, a number of our health plan partners, but our entire inventory of wise the well meals.
We are also offering meal bundles directly to our Silversneakers members, who have enrolled in our portal.
Although this is a relatively small revenue impact it illustrates the power of our partnerships and full power of the platform of our brands.
I also want to share another instance, where a partner asked us to help and how we innovated.
Walmart we have worked with since 2018.
Called us to help them with a challenge they were having to support Walmart associates and their nationwide network of distribution centers.
We developed stress management programs that Walmart made available across their distribution centers.
We met our enrollment roles goals in full January and February but when covert 19 cases began increasing in March we started to feel the impact with reduced enrollment and increase suspensions. We quickly engaged our prime members to help them stay active through a lower costs.
Cost virtual offering which has been positively received.
As I conclude my comments on the health care business unit, it's important to remember that our fitness business enjoys strong macro tailwinds.
Medicare advantage membership is growing and health plans are providing members with benefits that they value like silversneakers.
The health benefits of staying active.
As you age are well established and Silversneakers is the leading fitness provide our partner in this space.
With that I'll turn the call over to Tommy Louis to discuss the nutrition business units Tommy.
Thank you save and good afternoon, everyone.
While the revenue growth of the nutrition business is down year over year, we saw some great momentum and the first quarter.
Let's start with a solid performance of our Nutrisystem direct to consumer business. During diet season, 2020, our program messaging and offers seem to be resonating with consumers.
We experienced a step down and program starts during the second half of March ESCO at 19 up ended the lives of many Americans.
Despite the late March impact the nutrition business led by the flagship Nutrisystem brand exceeded the top end of our revenue and EBITDA guidance range for the first quarter, indicating a strong start to the year prior to covert 19.
From an operational perspective, we feel good about the positive momentum for the first quarter. Despite the March pressure, we're pleased with our growth and new customer starts for Nutrisystem in Q1, where we were up year over year, we expect the growth in new customers to continue throughout the year.
You'll remember that we told you on the fourth quarter earnings call that we were going to increase average selling price.
And we were successful in doing so.
Although our Q1 average selling price was down year over year, we were able to successfully increased prices on a sequential month basis in the quarter.
In addition, our men's program continues to perform well with men's program start up 12% year over year driven in part by the launch of our new men's campaign for diet season 2020.
In April the cost to acquire customers continues to be favorable driven by efficient media spending.
Communicating the right messaging and offers that resonate with customers and effective conversion.
As well as favorable market conditions for media buys.
We continue to shift our media mix more heavily towards digital with linear TV spend down significantly year over year, thus expanding our reach at a lower cost and our other key metrics are on track with our expectations revenue per customer length of stay and customer side.
Satisfaction rate.
From a broader perspective, when we began to feel the pressure of cobot 19, changing Americans priorities, our marketing group was able to quickly pivot our messaging and offers to focus on our ability to deliver a healthy meals.
Shakes that support immunity and snacks.
Home delivery of meals is a key competitive differentiator for nutrisystem.
In addition, we collaborated with Amazon Walmart and our supply chain partners to ensure we could support our customers without interruption.
With the launch of our new TV spots and digital creative emphasizing home delivery New program starts in late March and through April began to improve.
We closed out March on a positive note.
And let into a good April and spring selling season. We believe this demonstrates that nutrisystem DTC is trending positive and new customer growth and better marketing efficiency.
I'm pleased with our ability to enhance the Nutrisystem brand have back quickly leaning into the need for home delivered healthy meals and Patrick stocking.
Further I'm proud of the flexibility, we showed and standing up new creative with digital promotions and TV spots that resonate with customer needs in these times.
We believe that when we began to recover from the pandemic. Many consumers will realize that they put on pounds from cocooning dressed dating.
Snacking lack of exercise and reduction of outdoor activity, which could provide an opportunity for us to generate demand.
Looking ahead Nutrisystem is already a natural beneficiary of underlying macro trends such as obesity chronic conditions and health and wellness and we're hard at work executing our strategy to respond to these consumer needs.
In conclusion, we began the year building momentum for our flagship Nutrisystem brand.
Growing new customer starts.
Improving our average selling price expanding digital media and then driving messaging for the home delivered healthy meals to our customers diversifying our message beyond diet and enhancing our brand equity along the way.
I'll now turn the call over to Adam Harlan for a review of the financials Adam.
Thank you Tommy add good afternoon, everyone.
I will cover additional information related to our first quarter results balance sheet and liquidity fortification.
As well as our decision to withdraw 2020 guidance.
Our Q1 healthcare segment.
Generated revenues of $159.7 million, an increase of 2% over the same period last year.
Silversneakers revenue was approximately $122 million down 1% compared to last year due to fewer revenue generating visits in March related to fitness center closures.
We ended the quarter with 16.2 million health plan members eligible for Silversneakers.
With 3.6 million enrolled.
Average monthly participation for the quarter was 7.8% down 40 basis points from last year.
And total visits for the quarter were 25.4 million down about 4% compared to last year.
Moving on to prime.
We generated $33 million of revenue in Q1, an increase of 14% over last year.
Prime subscribers increased by approximately 13000 compared to the end of Q1 2019.
We ended the quarter with 339000 subscribers, which includes approximately 10000 members who decided to suspend their accounts in March.
In summary, we started Q1 strong then the wave of fitness center closures and mid March drove down our silversneakers visit fee revenue.
Although these closures also lowered our variable costs since our fitness centers are predominantly paid on a per visit basis.
This translated to $30.2 million and health care unit adjusted EBITDA.
Which was a 15.7% increase over last year.
I'll turn now to the Q1 results of the nutrition segment.
Which exceeded guidance for both revenue and adjusted EBITDA.
First quarter nutrition revenues came in at approximately $178 million.
209% increase compared to the same quarter last year.
As a reminder, we closed on the Nutrisystem acquisition on March eight 2019.
Therefore, Q1 2019 results are from March eight through March 30, Onest 29 team.
Although on a full quarter comparison basis.
Nutrition segment revenue declined 7% year over year.
That said.
The Nutrisystem brand DTC business performed better than expectations.
Generating approximately 156 billion in revenue.
Down just 1% compared to the prior year on a full quarter basis.
Nutrisystem DTC, new customer revenue remained consistent year over year at $95.1 million and reactivation revenue was down 2% at $60.5 million.
The new customer revenue was driven by 3.7% growth and new customer starts.
And an increase in length of stay.
Both of which were partially offset by decline in average sales price.
Moving on.
South Beach diet revenue was $12.8 million down 30% year over year.
And QVC and retail contributed a combined $9.6 million in Q1 revenue.
Down 41% year over year.
First quarter nutrition, adjusted EBITDA showed a loss of $1.4 million better than our expectations for several reasons.
First we successfully tested and implemented price increases and the DTC businesses.
Second while marketing as a percentage of revenue was higher in Q1 year over year.
We have seen efficiency gains in our DTC businesses.
And third we are effectively managing our DNA spend on both a dollar and a percentage of revenue basis.
In regards to the Q1 impairment charge noted in today's press release.
The cobot 19, pandemic has driven adverse and rapidly changing economic conditions.
In March 2020, we experienced a sudden closure of our fitness Center network.
Followed by a significant decline at our market capitalization.
These factors together with a change in the market based assumptions used in our cost of capital calculation.
Drove our decision to perform and impairment evaluation.
Following this assessment, we recorded a non cash impairment charge to both the Nutrisystem trade name and goodwill.
The decline in fair value was primarily driven by the change in market base assumptions.
Used in our cost of capital calculation.
We do not expect these impairment charges to have any impact.
On current or future operations.
Nor affect our liquidity.
Cash flows from operations.
For compliance with the financial covenants set forth in our credit agreement.
Turning to our Q1 balance sheet and cash flow.
We ended the first quarter with cash on hand of $83 million, which includes cash from our revolving credit facility.
In late March to proactively maintain financial flexibility, we made the decision to borrow $75 million on our revolving credit facility as precautionary measure.
With $47 million still available to borrow at the end of Q1.
It is our attention to pay this back when our fitness Center network largely reopens.
And when we have a better sense of our membership participation levels.
We ended Q1 with $1 billion of term loan debt.
And in February we paid down $20 million and term loan principal.
Meaning our next quarterly amortization payment is not due until June Thirtyth 2021.
We ended the quarter Incompliance with our maintenance covenant ratio.
Which was 4.25 times below our required ratio of 5.75 times as calculated under our credit agreement.
Our free cash flow for Q1 was strong at $42.1 billion, reflecting the positive operational performance of both business units.
Coupled with a favorable working capital dynamics.
As Bob mentioned during March and April.
We instituted a programmatic approach to strengthen our liquidity.
Reducing or eliminating costs across both business units.
We are laser focused on prudently managing our discretionary expenses to ensure we continue to have robust liquidity and runway to operate both businesses with confidence.
Throughout the Coven 19 crisis.
With regard to our credit facility.
We believe we will be incompliance.
With a net leverage ratio covenant over the next 12 months.
Our belief is based on certain key assumptions, including the temporary closure of fitness locations and.
The average participation level of our members once these locations reopened as well as other factors.
Finally as mentioned in our press release today.
Given the rapidly evolving nature of the coven 19 pandemic.
We are withdrawing our guidance for 2020.
We will continue to periodically report the results of our operations and monitor ongoing developments.
And with that I'll turn the call back over to Bob Bob.
Thank you Adam.
As the country emerges from the pandemic and light begins to look a bit more normal.
Im confident with the backdrop of our favorable end market trends are significant brand positions and trusted health plan relationships that Tivity health business will thrive.
I think the advances that we have made in Apple models of food delivery.
And virtual fitness have opened up new pathways for us to drive additional value in the future.
We'll now open the call to questions operator.
Okay. Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press, the pound or hash key in standby, while we compile the came in a roster.
First question comes from the line of Alex Fuhrman with Craig Hallum Capital. Your line is open.
Great. Thanks, very much for taking my question I know, it's obviously hard the.
Giving any kind of an outlook for this year. So those certainly makes sense that you pulled the 2020 guidance, but can you help walk us through a little bit of the dynamics, especially on the fitness side of the business I'm, just where obviously revenue presumably down a bunch with all of your fitness centers close, but then you did mentioned.
That that most of your cost there are variable so seeing that come in as well on can you give us just at general sense of the impact to revenues to margin is the cash flows.
This year in the second quarter as long as the vast majority of your fitness network remains close.
Adam can you deal with that question or perhaps Steve can join in.
Sure happy to Halex happens a question.
Alex we don't want to get into forward looking statements given that we did with growth withdraw the 2020 guidance, but I'll, maybe take you back to what we said in February on the earnings call and as the Silversneakers model. If you recall is really.
Broken up between two different constructs.
75% of our eligible lives are under what we call a hybrid contract where the majority of that revenues from a visit FEMA, meaning that we get paid from a planned when a visit occurs at a gym Theres also there's also a small PMPM fee associated with that as well the remaining 25% of eligible lives is under a pure PMT.
Jim construct and so if you think through the dynamic of the rest of year with gyms are closed the piece of the revenue that is going to be most impacted for silversneakers will be the visit fee revenue and while gyms are closed and visits are not taking place that revenue will not occur now similarly, as I said the prepared remark.
Parks, we won't incur visit fees related to those Jim visits because they're not happening. So there is a little bit of an offset there.
But so far.
We are receiving payments from from plans under the PMPM women paid up through April added relationships are strong and we're hopeful as the gems do start to reopen and we have seen summary opened here in the last few weeks.
That will be able to report more in due course, Steve anything else you'd like to add sure. Adam just one other thing is.
Of course, we want our seniors to remains safe by all means.
But what we are seeing now is when we see some of these markets reopened and we see some of the Jim's reopened what we did his prior to that we did some research of our Silversneakers members to see when and how quickly. They would go back into the gems. The research was very positive, but people was saying as soon as its safe we will go back and actually what we're seeing.
As as these markets are opening at gyms are opening we're starting to see people back in the gym and executing on that that research that we have so early in the process, but positive momentum.
Okay. That's really helpful. Thank you for that and then just wondering if you could if you could talk to us a little bit about the economics of the virtual content that you've been offering for.
Silversneakers you if you could walk us through just from a high level, how you get paid for those for those content views in any costs associated with that I.
I think you mentioned in the prepared remarks that you'd be looking to have I'm, a little bit more of a virtual content presence in the future. Even after the gyms reopened that's is motivated by the success that you've seen with virtual content.
Our their financial implications for that as well just anything you can share with us about the virtual contact will be helpful.
Dave.
Sure Bob Good question so.
Let me most trying to break your question down.
Yes, we had to pivot and respond with virtual we handed out there, but we were our team was able to pull together and expand the offering going forward is very well received from our health plans and what we're seeing is it's really early in the process and we are receiving some.
Some payments on it we're not exactly sure how all of that is going to play out and what is actually going to be charged as we look through and try to figure out what does it look like today what is it going to look like tomorrow, but then what percent of our revenue going forward is actually going to come from this good portion of what we do that silversneakers.
As in our brand is around our social interaction on our social connectivity that piece is important to seniors as well. So we have to wait and see as our people going to move more back into the gym quicker to get their social interaction. So they're going to use more virtual is going to be a combination thereof. So early in the process, but we'll have warrant probably as we.
Get closer to our on our August earnings call.
That's terrific will thank you very much and all the best to everyone over at activity.
Thanks out thanks, Alex.
Your next question comes from the line, Steve Halper with Cantor Fitzgerald. Your line is open.
Hi.
Appreciate the detail on the hybrid and a pure PMPM.
On the offset on the visit.
What would typically historically the the payment to the Jim.
Uh huh.
For the visits the variable costs that goes away.
Yes, Adam but what are doing.
Sure Hey stay this Adam Thanks for the question.
Predominantly the cost of sales you see in health care business. The vast majority of that cost of sales relates to Jim visit fees.
And I'd say that when there are no visits there is that.
A very immaterial amount left over that would have to be paid to the Jim. So no no no Jim visits means no fees for the large part of our given quarter.
Got it thanks for the that's helpful. Thank you.
The question. So so when you think about the the economics and you said you getting.
Paid something for the virtual.
Wouldn't the you know the payers feel like Oh at least of getting something from PMPM. So wouldn't you just sort of in this temporary yields shorter period.
Give that.
Away because you're you're not you don't have to pay the Jim's right for the visits.
With the merger.
So Steve this is Bob.
For those visits under the PMPM arrangements. There there is no charge for those virtual because it's such a part of of what they're paying those four okay.
So what was the comment around we're getting some payments on the virtual side for.
We are getting payments are the virtual side from the hybrid models, where we would normally be paid per visit.
And please anybody check me if I'm wrong on that.
No Bob you're absolutely correct.
So in theory that would even have a higher gross margin right than the normal Jim business.
So virtual is good.
[noise] virtual is good but virtual is not going to offset completely all of the visits that we have lost as the results of.
All of our locations being shutdown.
Got it okay.
Thanks, I appreciate the commentary.
You're welcome Steve.
Your next question comes from the line of Dave Styblo with Jefferies. Your line so.
Hi, there good afternoon. Thanks for the question.
I think I heard the comment that your actions on the furloughs and compensation reductions and so forth for.
Collectively worth about $40 million of savings for the years, just curious did did how much of that landed in the first quarter.
Yeah, Hey, Hey, Dave I can take that.
It is an annualized number everything has been executed too so.
There is a components such as tax cash tax savings would occur is accurate a cash we'll have to be walk to file that and get back in but the actions have been taken and we expected to be fully realized it's also combination of lowering our capex outlays for the year.
So these are all things that are inside of our control and have been done.
We are we think they're meaningful and will be helpful. And so we will update you as we go and on our progress to that next quarter.
Okay I was just trying to understand the.
Imagine some of the Atlanta in the first quarter and that's that's perhaps expanding some of the higher EBITDA outperformance there is that fair to say.
Yes, I'll elaborate a little bit it was very late in the quarter very end of March some of that instituted I'd say the bulk of it was probably in April so you'll probably see more of that show up and components I guess gionee when you get into Q2 versus Q1.
Got it Okay, and then if I take some of the back of the envelope math of what you guys have sat through the first couple of months of February year over year comparison, My my rough math suggests maybe maybe the month of March was down 20% from a revenue standpoint year over year and the fitness business.
Is that a reasonable amount and is that any animal I know you don't want to go forward looking too much but is that roughly a fair proxy for to think about the revenue pressure that you might experience while we're in the state of complete locked down.
Well, it's tough to say day, because March still had a robust visits until we did it was very it was it wasnt as gradual as I thought it would be was is very sudden as matter of fact, I think actually our visits month over month.
For March were down like 47%, which got you kind of down to that that 4%.
Number for the quarter so.
I think.
It just got to be variable, depending on the Jim the gym network and it is rapidly changing out there we have some states reopened as Steve mentioned, we already have some members who have returned albeit very small amounts and it's just it's too soon to tail and just in this environment. We thought it would be prudent to withdraw guidance at this point and.
Circumstances change will certainly rethink that decision.
Okay, all right in the last one from me would just be.
On the prime business, because I think within silver sneakers or some natural counter offsets because of that the degree of fixed revenue that you that you get from the plans, but implying.
I think a lot of that revenue and EBITDA to quickly go away if those.
Members cancel the plans I'm curious to get a better sense of how many have cancelled I think maybe you've talked about some delays or suspensions, but.
Are you not seeing folks just completely back out of it and then how do you think about that ramping back up in an environment, where I think maybe a lot of these these pine.
Customers are ones, who who would travel a lot would enjoy the benefits of being a different jim's across the U.S. is that is there an element where you've you've thought about what what that might return Q and a normalized environment.
Dave.
Yes, So let me, let me kind of walk through and take that one apart as well reach back. So as we started to see the Jim's closing, we really read back out to our prime subscribers are active members and we gave them options. We said you could spend your account you could take advantage of a reduced fee for.
Three months with a virtual option, where you can cancel so is through the end of March the number that Adam quoted of how many subscribers. We had actually included 30 10000 that were suspended.
Now as time goes on and if the Gen stay close longer we may see that increase a little bit.
Right now it it's holding pretty steady we've actually had a few in the loop. The operative word is a few members calling to turn their accounts back on and come out of suspend as the states are opening up so again I think it's early to tell we havent seen the on slot of cancellations.
But we haven't seen a non slot of of new opportunities either.
Okay. Thanks much.
Sure.
Okay.
Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Yeah, Thanks for taking the questions and for all the details thus far I'm curious how youre marketing efforts within the healthcare decisions have changed.
We will change going forward to continue to engage seniors both to bring them back and forth and make them. So comfortable when we do see these stay at home quarter subside and for those that are not to get them comfortable doing at home on demand activities.
Sure I'd be happy to to answer that rank. Good question. So what we're doing right. Now is everything that we're doing is is a from a marketing standpoint is done from a digital it's their their email social media, where we're communicating the options. If people have we're actually in the process of developing a plan.
Right now for both Silversneakers in Prime on how we're going to get people back engaged and back into the Gen and active again now again as we said before our main goal is to make sure our senior stay healthy, but a lot of that is going to be driven by what's happening at the local level in the state level as to the precautions that have to be taken before so.
When could go into a gym and what is being able to be done within that Jim. So we're evolving right now through those whole plans were working hand in hand, with our health plan partners to develop those plans on the they are eager to get their folks back end, but they also want to make sure that they do it when it's safe and the members are healthy and they're also.
Taking that precautions that they need.
And Ryan this is Bob if I could add just to.
Touch to that.
I think Steve is exactly right, we're not going to do anything the undermines our our seniors being safe.
I will tell very quick story.
Senior Senior leader I had one of our health plan partners, who went out of his way to tell me that his mother had just Doug one of our virtual visits.
And that she loved it.
So I think there is very strong acceptance out there.
Of these virtual of these virtual visits but I know the people are anxious to get back to the Jim when it's safe.
Great. Thank you for that and then can you offer little bit more color on the board decision to pursue strategic alternative potentially for though.
Nutrition business I guess my question would be one the some of the damage is obviously already done.
Turnaround is underway, but I'm curious is a asset no longer think integrates as well with the core health care business in regards to.
Working with payers working provide post discharge meals.
Reflection of any thoughts on there is just.
Wanting to clean up the balance sheet given the current environment into that features I think more color there would be helpful. Thanks sure sure I'll take a shot.
So I I think once we had a number of of management changes in the company earlier this year.
The board took the opportunity to do a complete review of our strategic plan and what our go forward look like.
And there's a clear recognition that since we bought nutrisystem.
It has not performed as we had anticipated that it would.
And as a part of that the board determined that the better the best path forward.
Was to announce an exploration of strategic alternatives and to engage lazard as our financial advisor so that doesn't necessarily mean that a transaction will happen.
But it does mean that we're open to that at any transaction that we do would have to be credit enhancing.
For the company in the event that there is a transaction.
Tivity health would continue to own the wisely well brand.
And we would hope to work with.
In the event of transaction occurred we would hope to work with Nutrisystem on a going forward basis to have them continue to.
To manufacture that product and work through us under that arrangement.
I'd also say.
That.
Interest in health plans.
He is still very much there in nutrition and I'll, let Steve perhaps expand on that.
Sure Bob so as it relates to.
That we're having a very strong robust sales pipeline for not only silversneakers, but for our wisely well products as well. So we haven't seen really a slowdown from that standpoint, our health plans are still interested in it right now they're focused a lot more on how do we get meals to our seniors that Needham.
Right now, which we've been able to provide for several of our health plan partners and then as they're working on their 2021.
So a bit submissions there, including nutrition in that for both discharge primarily so good opportunity there more to more we'll have more details to communicate in our August.
Earnings release.
Okay. Thank you those are very helpful standpoint. Thanks.
Welcome.
Next question comes from the line of Mike I testing with Barrington Research. Your line is open.
Hey, guys lots and lots of good information. Thank you I didn't catch it if you mentioned that I did hear that on in Prime that you guys offered members a.
One of the options was reduced fee for virtual content, how much what percentage of prime folks actually took you you guys up on that.
Yeah, Mike I don't have that at my fingertips I'll get back to you on that on an answer.
Okay.
And then I just wanted to go I wanted to go back to a silversneakers. So if I'm understanding of the 25% per member per month.
Eligibles.
You guys are currently getting 100% of that action Oh.
Just essentially for providing the digital option is that correct.
Yes, it's sad and the network as well I mean, you know the networks that fully reopened in for sure.
But there there is a chunk of that it has reopened in the in late April. So I think thats important thing to come away here is that if we're at a period now were reopening.
With that PMPM, it's still going to give access to members of Jim's went when those numbers are ready to go back.
Right, but I guess, what I'm, what I'm getting at had have any payers tried to renegotiate the the PMPM aspect of these contracts, whether it's the hybrid or they straight PMPM.
Yeah, we are like all of our.
Go ahead, Bob go ahead Sir.
Don't know, Mike, Mike I would say that all of our contracts or are intact and we're fully paid up through April.
Okay all right.
And then in in terms of the cost cuts you guys I think I think I heard a 125 colleagues taking 25% costs.
Pay cuts, including exactly and then 125, just furloughs not not no no no true head count.
Permanent reduction, but just a 125 furloughs is that correct.
It's 125 furloughs Mike.
Okay.
All right and what would be they will already be will bring those will bring those people back.
Or at least most of the will bring them back as the Jim's begin to open up.
And we need them back out in the field servicing.
The germs and and and our and other parts of our customers.
Okay, Okay, and then Oh on get the Tommy and on the action South South Beach.
Seem to actually have a better I I perceive that business to be more of a mess. Then then the results seem to indicate can you just sort of comment on what what you're seeing there what you're trying to do that.
Hi, Hi, Mike I Hope you well thanks for the question.
First off South Beach diet met our expectations for for Q1. So so let me say that we continue to see pressure in South Beach.
It's primarily a scale issue at this point acquisition costs are higher.
Reacts are lower because we don't have as many alumni that have gone through the program, but after January what we've done with South Beach was pivoted heavily virtually all digital so all of our our media spend and promotion is on the digital Fry. So we've been able to improve EBITDA a significantly so.
Now, we're managing EBITDA, while we currently evaluate the business alternatives and its just.
Yes on the model.
Yeah. So the Reds there there were only down 3% I mean that that's to me I guess I I was perceiving that to be in were shaped and then that I mean is zero early second quarter tracking fairly close to flat.
Yeah, I don't want to comment on on forward looking since we are attractive guidance, but I mean, clearly revenues or are down year over year. If you look at the first quarter, it's down about 30% as as Adam alluded to in Andrew remarks, we're not happy with that we'd like to see that business growing but oh we.
Haven't crack the code yeah. So we're working on the business model.
Oh, I'm, sorry, with South southeast was down 33 zero.
That's right.
Okay, sorry, I missed I mean, I Miss heard earlier, okay. Thanks, guys. It really appreciate it.
Thank you Mike.
Okay. If you would like to ask a question press star one on your telephone.
Our next question comes from the line of Challenger Singh with Credit Suisse. Your line is open.
Hi had Olin just a quick clarification, Adam you mentioned that you had of the company had 15.2 million and as a booth at the end up Q1 that was down sequentially slightly from 15 point see at end of Q4, then opcone like one person I mean youve talked about.
Well with ups that into a worsening twentytwenty just wondering like a light I.
At least Eligibles number didn't go in line with EMEA EMEA market and talking about.
Yeah, Theres couple pieces it certainly came in.
Where our expectations mortgage lender or.
Recall, we have agents our guidance with the ended the year in 2020 close to 16.4 million eligible we ended Q O Q1 here with 16.2, and so what we will see as seniors age and throughout the year that eligibility number will grow and and we feel like we're on target.
To hit that 16.4 million eligible number.
Okay and then following up on Mike's question that on the PMPM contracts.
Just a clear on that I mean, so these contracts do not include any language at all and that Okay. You have to have minimum these numbers visit at least I need before the what ended but for the PMPM revenue I'd bismol constrained upgrade in contracts right and that's going to become a number of visits.
Yeah. This is a this is Steve we don't can't comment on specific contracts with our clients.
Okay, but I mean themselves. They know close any of these contracts are coming up for renewal in the dumb and Oh I know you have got baked in April but any of this call for in all these contracts given a reprised at lower level because of the ability to nation them. In this just wondering if foot any talks on the any of these contracts coming up.
Put into will it be item.
Now the contract or enforce the renewals that Steve is talking about just earlier relate to the contract period that will start in January of 2021. So the contracts. We have now are fully in force at you know and as Bob mentioned earlier have been fully paid through April and.
The relationships and interaction and this is the more important fourth relationships interaction those plans have been very positive over these last two months to seniors have had to socially isolate a lot of them have leaned on to us to help engage those seniors through the digital platform to make sure that there is that touchstone there while they're at home.
Oh and when the time is right, we'll get it back into the Jim.
Okay and then my last one can you remind us on your geographical exposure a little folio revenue.
Probably mid or the Medicare advantage enrollment in the country or is it on as the names of anything that on PMPM in high bid contracts any any thoughts on that the idea is because I mean.
Well there yet when do the open in the country with Europe and will vary a lot by geography, just trying to understand how you would explore that a stand some different different markets.
Well, it's Paul its broad exposure I mean, where we're at all the lower 48 and we have.
Yes.
Eight out of the top 10 Medicare advantage clients. So you can see their footprint and in derived where where we are in terms of visit visit membership Steve anything else you down on that now I think you covered it.
And to be MGM habit, both on a pretty much similar right in terms of geographical explore that are bandy radiants as you will see that PMPM is heavily skewed towards certain geographies versus others.
Yeah. There is some states that skewed one way or the other I'd say I'd say the many of them are blended but you just you have to take into account that 75% of the 16, plus nine eligibles or under a form of hybrid contract.
So we're naturally going to leave we're going to lean towards that direction, just because of the mix of eligibles.
Okay, all right. Thanks.
Your next question comes from the line Jessica Hansen with Piper Sandlin. Your line is open.
Hi, Thank you for taking my question.
One on me on that hybrid revenue I know, there's a portion of that that and not related to visit volume is that more at the start up costs is that all right sorry, It started out and revenue that recognize in first quarter is better kind of a ratable panhandle or the question here.
It more more behaves like a ratable PMPM so in it to answer your question that that.
75% of our revenue does not come from visits because 75% of our contracts or hybrid which means that portion of that hybrid does have a PMPM component that is.
Per member per month.
Okay, Okay I'll be here in a small at a smaller and smaller piece smaller fee than what you would see and our pure PMPM contract.
Okay. Thank you and then get with respect to the hybrid contract interested to know it sounds quite how cold. It is kind of changed if at all your thinking.
Hi, good a hybrid contract.
Versus PMPM and and we've had any conversations that health plans and to discuss the potential for moving some of that type of contract back to more heavily weighted towards the end yet.
So just get good question I think at this point in time, it's too early to tell we have not had any of those conversations with our health plans, we have to wait and see how this all plays out but how long is going to last.
So right now, it's kind of a wait and see and again [laughter] excuse me a little too early to tell.
They're Jessica I would add that I would add that no matter, which direction you go on on that equation.
A lot of it depends on what's going on in the in the market.
Certainly our hope and I think everyone. So.
The Kuroda virus is something that once we get rid of it will there ever come back.
Even though we know there's probably going to be more waves of it.
Exactly okay. Thank you that's helpful. I appreciate you taking my question.
Thanks Jessica.
No no further questions at this time I will turn the call back over to Mr. Gretchen.
Thank you operator, and I just want to say a final. Thank you everyone for joining us this afternoon.
Your questions have been great questions, and we will look forward to catching up.
With the interview for any follow up questions very shortly thank you again.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating may now disconnect.
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