Q2 2020 Tivity Health Inc Earnings Call
Good afternoon, and welcome to the Tivity Health second quarter 2020 financial results Conference call.
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As a result of new information future events or otherwise I'd now like to turn the conference over choose.
The company, President and CEO Richard Afterward.
Ashworth you may begin.
Thank you all for joining the call today to discuss Tivity health second quarter, earning results I assumed the role of activities President and CEO in June and I'm excited to be on board before I go any further with today's remarks I want to start off by thanking our colleagues for their ongoing efforts and what does a very challenged.
One time for everyone.
It's clear to me that activity help team loves what they do and I've been incredibly impressed with their dedication and hard work that I've witnessed in my short time here.
Background my approach is to be direct organized disciplined in our decision, making strong we focused on company performance well dedicated to providing meaningful experiences for our customers.
Color on where I'm coming from I'd like to sure why joined Tivity Hill in some of my observations from my first two months here.
First and foremost what drew me to this rule was a significant opportunity for growth in both our businesses.
Silversneakers and Nutrisystem or two incredibly trusted brands with fiercely loyal membership basis activity, how that's cultivated impressive and deep relationships with our health plan partners and our customers.
I believe one of the keys to anybody else itself is the actual difference it makes to the consumer.
We help people under path to better health by being more active add losing weight.
Reputation of these brands is stronger than ever and has continued to make a positive difference in People's lives every day.
Since I joined in June we've been working with diligence and speed to develop our t. initiatives to build upon the existing foundation and set us up for future growth.
Well still at work in progress the strategy will be based on several principles, including leveraging our great brands reputation and focus from our colleagues incurring onto the fantastic Silversneakers in prime platforms, accelerating our digital capabilities and ensuring discipline in all aspects of the business.
We remain committed to the success of Nutrisystem and are focusing efforts around technology quality and personalization.
Ultimately, we're organizing for growth around the key pillars of loyalty.
End and customer.
There's a lot of exciting work to be done to solidify our long term strategy and I look forward to updating you on our progress in the future.
I'm incredibly pleased to be able to kick off my first earnings call activity helps president and CEO.
Reporting strong second quarter results supported by actions that stabilized the long term health activity Hill.
This quarter is evidence that our model is adaptable and resilient.
And to help your business, we made great progress expanding our digital brands, which helped to partially offset the lower visit volumes that we anticipated, resulting from cobot 19 related Jim closures.
Do you expansion and adoption of our digital brand in Silversneakers and in prime as meaningful opportunities for activity health in terms of creating additional value for our customers and members and also and enhancing our financial value.
Intend to accelerate our digital roadmap and path to monetization for health care and focus on differentiating us by the consumer oriented experiences. We will provide digital will be an important piece of tivity helps offering in the future.
On the nutrition side, our solid results were derived from robust new customer growth for the Nutrisystem brand driven in large part by our innovative new personalized plans.
Our expansion in digital marketing and creative that resonates with consumers.
We believe the investments we made in our AD Tech martech capabilities, along with our broader marketing transformation initiatives will serve as a catalyst for sustained growth for this business.
At an enterprise level, we took the necessary actions to stabilize the business for the short and medium term and to ensure the viability of our cost structure.
The sustainable decisive actions that we implemented, especially in the healthcare business have put us in a better positioned to compete for the long term.
We ended the quarter with a strong cash position of 60 million and we repaid the 75 million revolver balance in mid June.
At this point, we have maintained stability and are confident that we will in the or slightly below our credit facility covenant ratios.
Additionally, at the end of July we took further action taken additional 25 million.
Our long term debt, which means our next mandatory amortization payment is due in December of 2021.
We are in the early phases of organizing for growth in our ultimate goal is to ensure we have the appropriate organizational structure and processes in place to succeed in the future to do so we're running multiple scenarios, we already focused accountable organization, enabling a clear line of sight in our core business performance and value building.
Activities.
We are creating a flexible and nimble variable cost structure and they big lots to quickly scale when merited by business expansion opportunities.
Before we turn to review of each of the business units I Wonder provide an update on the announcement we made during our first quarter earnings release, we had commenced a strategic alternatives process regarding our nutrition business, which could include a transaction.
We're pleased with the interest received regarding a potential transaction related to our nutrition business as noted in our earnings release today, we're working to determine if there may be a qualified buyers who will meet our objective of a transaction that it's beneficial for all our stakeholders.
Well the nutrition strategic alternatives process is ongoing we will continue to operate this business and maximize all opportunities to better serve our customers grow our business and prepare for a successful 2021 diet season.
Turning now to the health care business I want to take this moment and recognized Steve trying to check for his leadership to Tivity health and our health care division over the past four years.
Even though I have mutually agreed that Steve will be leaving Tivity health effective August 31st.
Steve It's been a great leader to Tivity and it's been a key driver of the growth and expansion of Silversneakers and Prime we appreciate his contributions and wish him well.
Steve was put together a strong leadership team and we expect a smooth transition I have already been in touch with many of our largest flights and enjoy broad relationships in the Medicare advantage space, Steve will be joining us on the call later for the question and answer portion.
Well, we continue to face some challenges due to the ongoing cobot 19 pandemic during second quarter, our strong brand and deep customer relationships have been encircled as we're navigating choppy waters and focusing our efforts on innovating and adopt for growth and these uncertain times.
In our Silversneakers business, we saw an uptick in our in person member because that's a stay at home orders were lifted particularly in June.
Opening is ongoing for our partner locations with approximately 66% of our Jim's reporting at least one visits for the month of June.
Well visits are around 20% of our pre cobot levels. Those members that have returned are participating at nearly the same frequency as they did before cobot 19.
At this point, we don't have a clear view of when James will be fully reopened and when total participation will return to pre pandemic levels, regardless of how long the effects of the pandemic less we believe digital will play a larger role in the lives of our members going forward. So we've continued to pursue the acceleration of our digital strategy.
The second quarter, we were successful in continuing to quickly scale, our digital offering to keep as many members active as possible and we generated engagement in our digital platform.
Use of our Facebook lives Silversneakers classes and on our Silversneakers Dot Com portal increased nearly six fold in April and May compared to February.
25% of digital attendees were new to Silversneakers in Q2 and were first time Engagers activity Hill.
This is another proof point of further extending our brand relationships.
Beyond member engagement, we maintained our solid relationships with our clients throughout the second quarter. We continue to work closely with our health plan clients to develop the optimal digital commercial construct that will be mutually beneficial over the long term.
Our health plan partners have long term views on the member journey to help and value Tivity helps contribution.
In the middle of this crisis to help numbers that their social physical or nutritional needs.
A few noteworthy highlights from this selling season include.
In addition of over 350000, new Silversneakers lives for 2021, including new clients and market expansion within our existing clients.
Expansion of our whole health living occupancy a program with new and existing clients.
And existing client renewals on par with prior year success. Despite the challenging environment. This includes clients on both our payment models turning to prime I want to start with a quick reminder of the business model.
Five offers a comprehensive network of over 12500 partner locations and as market into our health plans commercially insured numbers under 65 years old in the second quarter Prime accounted for 23% of healthcare revenue as we anticipated we saw a sequential decline in the total number of pride subscribers in.
The quarter predominantly resulting from numbers partner locations being closed.
Well, we were able to counter some of this decline, but new subscribers in the quarter. We now have a total of over 230000 paying subscribers and over 7000, if those subscribers joined us in June.
We are watching the landscape closely in terms of reopening we've extended our digital solution to this segment of our business as well.
We also launched our new Prime solution with one of our large health plan partners in the quarter. This new product incorporates more flexible package options for individuals including family plans and the incorporation of studios and boutique Gen.
As part of this launch on our enhanced platform Tivity also introduced new mobile capabilities, the our prime out including the ability to book studio classes on the go and complete mobile Jim check yes.
I'll now turn the call over to Tommy to review the nutrition business Tommy.
Thanks, Richard and good afternoon, everyone.
Our strong start to the year continued in Q2.
Yes, and close out another solid quarter for the nutrition business.
Our Nutrisystem brand DTC performed particularly well this quarter delivering revenue growth of approximately 6% year over year strong EBITDA contribution.
Hey, guys are trending into right direction to include Nutrisystem DTC, new customer starts have increased 28% year over year.
Average selling price continues to increase following our Q1 price increases.
We added nearly 2.5 days to length of stay year over year end customer acquisition costs improved over last year due to our continued shift to digital improved analytics tools and execution.
New customers start trends in the quarter were exciting.
Q1 momentum flowing into April and accelerating to managing in fact this was the strongest my in June and over a decade for program starts for the Nutrisystem brand and the favorable momentum is continuing through the summer. We believed that our actions are driving the majority of the grow.
In program starts falling acknowledging that cobot 19 has had some impact on consumer behavior.
Personalization program is resonating with consumers and our creative and messaging or on point with an emphasis on our competitive differentiators of how meal delivering high quality food program that delivers results.
The continued evolution of our digital marketing program is paying dividends as we increase reach improved targeting reduce acquisition costs and achieve marketing efficiency overall, even with our TB percentage of media spend declining our TV spots are more productive we have seen.
Call increase significantly recall measures how memorable our advertisements are and there's an important factor and brand awareness and the productivity of our TV spots.
We have emphasized the efficiency and effectiveness and our approach to marketing and it has proven to be exactly what this brand needed.
One example of that being in our rate of non user awareness or those who have heard the brand, but never tried it.
That group increased meaningfully for Nutrisystem in the second quarter, suggesting that our Q1 marketing brought consumers and to the top of the final.
We also saw solid reactivation revenue trends, which has positive implications for EBITDA and indicates we have a loyal customer base.
Our South Beach Diet brand, our digital only marketing strategy is working.
We have improved EBITDA in the second quarter, although topline revenue was pressured as expected.
Turning now to our marketing transformation initiative, which we launched last fall, we made advancements in our marketing technology talent and tools all aimed at improving media efficiency reach targeting and enhancement of the brand.
We are also readying to launch the second phase of our AD Tech Martech effort with our consumer data platform. This effort will be modernizing our marketing and digital tool kit with better consumer insights and improved omni channel analytics.
Finally, a big reason behind the strength of our brands is our focus on the customer experience.
We are expanding customer engagement efforts, which we believe has been a factor in increasing the average time on program.
Other drivers are numi, our app for Nutrisystem and the lead our robust content site Numi continues to see increases and engagement with more consumers using the app and using it more often engagement with the Lee is increasing as well as it has become a go to resource for our customers.
For information about health and wellness as customers have become more engaged in our resources and tools. They are buying more all at current products and staying with the brand longer.
In summary.
We're very pleased with another strong quarter for Nutrisystem.
The combination of the foundational work, we did in digital and like 20 octane and early 2020.
Great program that achieves results.
Offers that resonate with consumers and customer acquisition are all working together to generate continued momentum in our business.
Now I'll turn the call over to add them to review the financials Adam.
Thank you good afternoon, everyone.
Our health care segment generated revenues of $81.9 billion, a decrease of 48% from the same period last year.
Silversneakers revenue was approximately $49 million down 60% compared to last year due to temporary closures within our fitness network, resulting in fewer revenue generating visits.
Because of these closures silversneakers revenue profile during the second quarter of 2021 substantially different from the same period last year.
Revenue from per member per month fees represented 88% of our total silversneakers revenue.
Compared to 33% and the same period last year.
We ended the quarter 16.3 million health plan members eligible for Silversneakers, an increase of 9%.
Over the same time in 2019.
Total silversneakers visits were 3.1 million during the second quarter 2020.
Most of which occurred in the month of June compared to 25.8 million during the second quarter of 2019 with monthly average participation decreasing during the quarter to 1.1% compared to 8% last year.
Proximately, 12% of the 3.1 million visits during Q2 were digital.
The second quarter ended with 3.6 million enrolled Silversneakers members.
Moving onto prime.
We generated $19 million of revenue in Q2.
Create a 36% from last year.
As reported in May we ended the first quarter of 2020 with 329000 pain Prime subscribers.
Throughout the second quarter, we saw fewer new subscribers and an increase in subscription terminations and suspensions relative to our historical norms.
We ended Q2 2020.
With 235000 pain Prime subscribers. This compares to 334000 subscribers at the end of Q2 last year.
Its subscriber decline accounted for the majority of our year over year revenue decline.
In line with our expectations, we experienced substantial decrease in Jim visits from our prime subscribers with approximately 760000 visits in Q2 this year compared to 4.8 million last year.
Moving on to home health living in other health care revenue.
During Q2, we recognize $2 million in wisely well revenue.
Also we generated $6.8 million in revenue from a program with a large employer.
Aimed at improving its employees wellbeing during the cobot 19 pandemic.
We do not expect revenue from this program to recur in future quarters at this level.
In summary, well covered 19 and the related Jim closures negatively affected our silversneakers in prime revenue for the second quarter.
A considerable drop in variable Jim's visit costs allowed for a strong flow through of revenue to gross margin.
Additionally, the health care Division took further actions to reduce costs and preserve liquidity in the near and midterm.
Therefore, this division ended Q2 with $41.5 million of adjusted EBITDA, a 16% increase over Q2 last year.
I'll now turn to the Q2 results for our nutrition segment.
Total nutrition segment revenues came in approximately $181 million, a 1% decrease compared to the same quarter last year.
Building on this momentum from the first quarter, the Nutrisystem brand DTC business generated approximately $165 million in revenue an increase of 6% compared to both the prior year and our first quarter 2020.
This increase was driven by Nutrisystem, new customer revenue of $107.5 million, which was up 12% year over year.
Partially offset by an expected decline of reactivation revenue, which was down 4% at $57.7 million.
The new customer revenue for Nutrisystem was driven by a 28% growth in new customer starts and in nearly two and a half a day increase in linked to say.
With a slight increase in average sales price.
Moving on.
South Beach diet revenue was $8.7 million down 40% year over year.
And QVC in retail contributed a combined $6.8 million in revenue down 44% year over year.
Second quarter nutrition, adjusted EBITDA was $33.4 million or 18.5% segment revenues.
This compares to $34.7 million were 19% segment revenues in the prior year period.
This year over year decrease was driven by slightly higher cost of goods in our nutrisystem DTC business related to higher food costs, and some program mix shifting to our premium products.
As well as a slightly higher marketing expense as a percentage of revenue.
Marketing spend on a dollar basis was essentially the same year over year as we saw strong customer demand and efficiency gains and our customer acquisition as we continue to shift our media mix more into digital and less dependent on linear TV.
As a result in the second quarter program starts for Nutrisystem brand DTC reached their highest levels in over a decade.
Our experience tells us this should drive incremental revenue and profits through the third and fourth quarters.
Turning to our Q2 balance sheet and cash flow.
We ended the second quarter with cash on hand $60 million.
During mid June we pay down our revolving credit facility.
Had 124.5 million available to borrow at the end of Q2.
We ended Q2 with $1 billion of term loan debt.
And we prepaid $25 million a principal amortization in July.
As a result, our next quarterly amortization payment is not due until December 30, Onest 2021.
We ended the quarter with a maintenance covenant ratio, a 4.08 times well below the maximum ratio at 5.75 times as calculated under our credit agreement.
Our free cash flow for Q2 was strong at $78 million, reflecting the positive operational performance both divisions.
Seasonality of the nutrition business plus favorable working capital dynamics.
Year to date, we have produced free cash flow.
$121 million.
In addition to the actions taken by management during March and April to strengthen our liquidity across both divisions. We made further cost eliminations and reductions in June.
Notable and significant actions, including lay off furloughs and the continued cash salary reductions impacting a large number of our colleagues management team and our board of directors.
We believe that our year to date performance. In addition to these actions create adequate runway to operate both businesses with confidence throughout the ended the year.
Regarding our credit facility based on our current assumptions, we believe we will be in compliance with the net leverage ratio covenant over the next 12 months I'll now turn the call back over to Richard Richard.
Thank you I'm going to close out the prepared remarks, I want to reiterate the utmost importance of the safety of our colleagues members and customers. We never take for granted once again I'd like to thank all of our activity helped colleagues for their dedication to our mission and their incredible effort and these unusual times there.
Okay and determination on behalf of our customers. The numbers are truly appreciate it we believed that our stabilization efforts and solid performance in the second quarter will serve us well as we move forward.
Pricing our growth opportunities as I indicated earlier, we'll be focused on ensuring we have the most optimal organization structure and processes in place to enable value enhancement, but could not be more pleased about my decision to join this organization.
We will now open the call to your questions operator.
Certainly as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please stand by what we compiled acuity roster.
Your first question comes from the line of J Laundry Singh with Credit Suisse. Your line is open.
Hi, Thanks, everyone. Thanks, and good quadrant I want to get better Nicolette out of your cost of production that doesn't board. This segment can you provide some color around how much of the smell does all the temporary given the covidien pad was how much as more of an ongoing nature.
Hey, Joe under this is Adam Yes, I can take that it's a mixed both we haven't broken out.
Which ones are or more in temporary or nature, I think clearly the lay offs are going to be more and bucket of permanent whereas cash salary reductions would be more temporary.
Okay, that's our up.
One follow up.
I would just say that a lot of those costs were focused on our health care division disproportionately versus the see attrition division as well.
Okay I've been on your comments at all and encouraging signs you're seeing from members beginning to turn to fitness centers.
Have you seen any major experiences in terms of geography, or the kind of cases continue to rise in up you know some Saddam states Watson's rest of the country any feedback you can share in DHMSM from your Jim thought knows it themselves Oh come floods seniors have and up some coming back to Jama and you know following the protocols and guidelines.
Any feedback from the new partners.
I'll start and then Steve maybe want to weigh in on some of the gym partner locations I would say drill into first of all that it's a as you would expect is it's pretty corollary to what's happening within the state rightsize. The governors are taking actions were seeing you know Jim participation reduce and then also come back depending on what stage or let's say.
So that each state has in the good news is in June we had 66% of our participating location submit at least one Jim visit and what we're seeing in our.
Feedback from our.
Disciplines is a high degree of wanting to get back and start keep the routines to stay healthy. So we are seeing it pretty disproportionally impacted two to what the states you don't see that you want to now the only other thing I would add is that as we talked to RPL partners. There, they're doing everything they tend to keep it as healthy as they can't for our our members and for their members in general.
So we still have some restrictions as to capacity, it's still almost a 50% there are still restrictions on kind of classes that they can do but as markets are open up we just opened up three markets. This past couple of weeks, Illinois, Minnesota, and Pennsylvania. So as places like Florida are scaling back in California, We've got a lot.
I will have an offset some of the our other market. So we're watching it on a daily basis. We're looking at anything that would do the best we can to try to keep everybody safe and healthy and keep them exercising as well.
Okay. One last if I can that's what I want to better understand your positioning with respect to the pending sandals nutrition business. How committed are you optimistic those selling that business, especially in light of some improving trends recently there.
Yes. Good question you wonder.
Came to this business because I was excited about both sides of the house to nutrition and health care side.
And there's opportunities for growth in both and I think what you're seeing today is strong performance and I'm very pleased with that at the same time, we're continuing to process on a on our strategic alternatives. We're pleased with the interest in Nutrisystem, we're working to determine if theres a qualified buyer who may meet the objectives that we have the trends.
Action that way, it's beneficial for all our stakeholders, we've mentioned before it needs to be credit enhancing and valuable to everyone.
Same time, our management team Tommy this team are 100% dedicated and focused to driving this business to the highest levels you've seen the results today. It's a great example of that were in heavy preparation mode for the 2021 diet season, and our board and and management team are committed to continuing to call for process here personally.
I'm happy to continue to run. This this is brand in this business I think it is fantastic, but at the same time, if we can find an alternative that credit enhancing and beneficial for all of our stakeholders will go that route as well.
Alright, Thanks, a lot.
Thank you and <unk>.
Your next question comes from the line of Ryan Daniels with Blair. Your line is open.
Hey, guys is mixed picked out and for Ryan I guess the start.
Given the margin improvements you guys are seen in health care with largely fixed PMPM fees that fairly negligible costs. Oh I was wondering if you guys were receiving any sort of push back from plans given the improved margin profile is there any risk of that you know in the future potentially.
Yes next so good question I know.
No. It's the short answer the longer answer is working in partnership with with our plans and Steve and his team have done a great job on the digital side, you know really working with plans to make sure that we can keep people moving right. That's our it's our main objective you see people.
Basically fit.
There's a lot and other things we do from our plans you know.
Other than helping them get into Japan, we help with some annual enrollment activities to help with engagement social connections and some other things. So at this point I would say no, but I would say also that our health plan partners really value the long term benefit of fitness for their members and so we're we're in this together.
Great and then kind of going off that a little bit prior to co bid.
Similar to the health care side was kind of thing a bit of margin pressure Jim's we're kind of negotiating.
Costs up or at least trying to I was wondering if that's kind of been reversing at all given the distressed agenda. There currently under and whether you see.
Those cost pressures kind of subsiding and in the medium to long term.
I had I haven't seen any changes as of now what I would say these are longer term contracts and.
Cobot is obviously impacting all of us in different ways, but at this point what I would say is that there is always a supply and demand pressure in the network business.
Continue to handle those as they as they come right now for gyms are focused on safety as Steve was highlighting on making sure the creating the right in bonus.
We're trying to make sure we keep engagement with our our numbers on behalf of our our clients and between the three of US you know health plans.
Tivity health and and our jobs or just trying to make sure we get people back to active.
Terms of the.
Margin.
Areas Nothing's really changed at this point.
Great. Thanks, guys I appreciate taking the question.
Thanks, Matt.
Sorry.
Your next question comes from the line of Alex Fuhrman with Craig Hallum Capital.
In line is open.
Great. Thank you very much for taking my question on congratulations on really really strong results here during the Pandemics wanted to ask about all of the digital classes that you've been doing on on Silversneakers that and you know due to a two a bigger extent you know your entire portfolio of of digital asset.
On the health care side can you talk about how you're monetizing that I know silversneakers with pretty quick to offer some some digital content that as fitness centers were closing across the country. It sounds like you're you're starting to get some members back into the Jim but still you know 80% down from from where it was a year ago.
Have you had good interest from members in the digital content, you think that's something that ultimately you're going to see Youre. Your members using for years to comment can you just tell us a little bit about the economics of how that works and are you getting.
Page four four visit when Youre members are engaging with with one of your online classes. It anymore color you can give up on that would be very helpful. Thanks.
Thanks, Alex good good question. So a couple of things on this I think first is that the future of fitness is a combination of digital and physical [laughter]. So I see that both are going to be required.
For for the right platforms of the future for for our beneficiaries and just in general. So we're excited about the opportunity that brings.
For our member base.
We have a couple of different ways that we virtually engage right. We have ones that are virtual with instructor and we have some that are more streaming on silversneakers common. We also have our Facebook live and between all three of those I would say engagement is really high in terms of the remuneration and the way doesn't work is our plans.
Steve to weigh in on how that's working in what the what it might look like sure mission in certain scenarios right. Now we are we are receiving some payments, but we're very early in the stage.
Figured it all out many of our plants.
Committed to let's just do we can get our members movie and we'll figure it out after the fact that we're going to we're starting and we're having those conversations now as to what does it looks like in the future because as Richard said.
Digital will be here as a part of what we do going forward. So it'll be a both in person as well as digital so some cases were getting paid but we still haven't figured out what the long term strategy is and how we continue that what the digital component of it is going forward.
Work with them right I mean, we'll work with our plans over what a good commercial model of future looks like for physical and digital and.
I will we'll make sure that gets its what's what's beneficial for everybody. The main thing is to get numbers healthy and keep them physically said, an active and that's because we felt that the same into in goal in mind him I'm optimistic about though.
Great. That's really helpful. Thank you very much.
Your next question comes from the line of Dave Styblo with Jefferies. Your line is open.
Hi, there. Good afternoon next question I think the Silversneakers business is pretty well understood that the.
Earnings are the EBITDA, there is very resilience and since there are some natural offsets when when volumes go up or down as participants scope I was more interested about the prime business. There I know that's down about 35% year over year Understandably I guess as you are starting to emerge some more normalized environment do you guys have a sense for how much of that.
It might be permanently gone since I think those customers usually are are more from business travelers who are on the road and want to have access to it to a nice Jim but if we're moving to an environment. That's more work from home is that changing sort of where that might rebound back up to any any way to tease out details as you're moving into June and July here.
Yes. Good question I think from from my point of view, it's a little too soon to predict what's going to happen when prime numbers much of this is going to be dependent upon Jim reopening.
Based on what we've seen so far though these members come back ones Jim's reopened we had 7000 new numbers in June such a good indications people wanting to get back to the job. We've also offered our prime numbers. Some other ways to engage we'd have a partnership with burn along with that can get virtual classes.
For those numbers.
We have taken some of our digital capabilities. We were building on seekers has moved over to Brian again, probably a little too soon to tell in Latam. If you want to have some commentary on this that's the way I see it yes, I think it's all right and Dave I think that the business travelers is a piece of it I wouldn't say, it's the is the biggest piece of the Brian model, There's still just.
Lot of folks that get this program through their health plans they workout locally.
We did see we did see visit start to come back when especially in June when most of the nation's Jim's reopened so I think I'd just dovetails into what Richard said too soon to say, we've got to try on it.
You make a good point that with Jim closures that this this model.
You may or May will be little unclear in the next few months in terms about how subscriptions go I think over the long over the long haul the model still has a strong model. It's a it's beneficial to the T cells adds ancillary revenue streams allows our health plans to add an additional benefit and I think that model is going to continue to be important for both parties as we.
Get out of Cobot next year.
Okay. Thanks for that and then moving over to nutrition.
Obviously, some nice progress there sales slowed down the declines from from negative 7%, the first quarter totally down 1% and some nice in customer growth I'm curious as you've seen here are.
Going forward do you do you think that business is going in flux, where you're you're gonna be able how some revenue growth in the back half of the year.
Hey, Dave Tommy.
I hope you're doing well.
The pressure that we see in that business is in the South beach and retail areas Nutrisystem DTC businesses is up and revenue 6% is as Adam mentioned, we'll continue to see some topline pressure around south beach, and and retail we're focusing in the South beach area from us.
EBITDA expansion perspective.
We've turned that business into a profitable business now.
It's 100% digital so that's our focus now as we reinvention the brand and we'll talk about bringing that ran back like later later next year retail we're optimistic about the load ins for this fall.
Got a lot of excitement around our new retail line. So we'll have more to talk about their next quarter, but we would continue we would expect that the momentum were seeing in Nutrisystem DTC will continue.
Okay, Great and then last one just on phone cash so $60 million at the at the two Q Mark and then you guys. I think are down about 35 million after paying off some conditional debt.
I know there there's a lot of.
Volatility and tough to see what's going to happen over the next or the second half of the year, but.
What are sort of the puts and takes the cash from here that you're thinking about working capital changes and so forth is is there an opportunity to.
Filled the cash back up a little bit and what do you thinking about doing with and without just immediately go towards debt retirement.
Or other investments that you night might need be making for for somebody enhancements to the digital platform.
Yes. Thanks for that question really good question Q2, yes from a seasonal standpoint.
Is that nutrisystem strongest strongest quarters and naturally. This is this was not the our heaviest.
Cash flow free cash flow quarter.
I think what we're looking at we have ample liquidity.
Yes, we do have we do have 60 million on the balance sheet, we generated more after the after the month of Jan and we paid down 25 million in July.
I think we're going to evaluate there are some working capital of dynamics that go the other direction you got seasonal inventory build for instance in the Nutrisystem business in the fourth quarter. So we want to make should we keep adequate dry powder, but we also want to be cognizant that we can make the investments the businesses, we need to make we do have a debt service that we need to pay attention to we don't want.
Hey interest costs were just not necessary. So we'll be balancing all of those together up against the backdrop of what's happening in that.
Our covert environment.
Okay. Thanks, Adam.
And your next question comes from the line of Jessica Thompson with Piper Your line is open.
Hi, Thanks for taking the question and I think we're just interested to know if you guys can speak it all tier and 2021 conversations with the health plans just in light of the and that visit volume pressure and contracting is skewing more in the direction add fee for.
Service at as opposed to flat PMPM PMPM style contract.
Thanks, Scott I'll start and Steve We had all I'd say at the highest level of the conversations I bet on par with previous years, plus yes relates to.
Clients or retain.
Amount, so we're doing doing well there and I think the mix is historically the same we're getting some that are fixed we're getting some that are our variable, but all in all the conversations not shifted much even during cove and in fact, the 350000 new lives. All came wall coated was actually here and happening. So I think thats a good testimony to.
The value that our health and fitness find in this platform Steve.
I think you hit it right and now running ahead, we're reviewing our contracts same rate we had four in prior years as Richard said, we're not having any conversations about switching.
Payment models and the new business that we're bringing in its a mix of both hybrid and PMPM and so basically if you take a step back and look at it we are pretty much on par with the prior years, where cobot really hasn't had an impact in a swing either which way as it relates to renewals more new business.
Got it and then if I if I could just ask one quick follow up and have you guys considered maybe alternative sites for some of your classes and.
Shrinking just outside potentially and and and if that's working any markets is that something you could permanently introduced and maybe mitigate the cost and add.
The fees charge team by the Gen.
Yes, we absolutely.
No brand called Flex, which is actually taking our classes to alternative locations most of them being done some of them being outside someone being an indoor location. So we are doing that we have done it I'm as you can imagine some of the participation was little bit low as people were quarantine in house, but now as people are starting to open up did get.
Outside we are seeing some participation increases in those classes as well.
Awesome. Thank you.
There are no further questions at this time I turn the call back over to the presenters.
I would just want to thank everybody for Ah for their question today. We appreciate the time to give you what weve what we accomplished in Q2, we look forward to staying in touch thank you.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
Good bye.
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