Q4 2020 Tivity Health Inc Earnings Call
I think
It's important to highlight the strength of our brand our health plan clients remain highly supportive of our efforts to engage their members physically and virtually because they know our brand resonates strongly with their eligible population and is an important part of their new member acquisition and member retention during the Medicare Advantage annual enrollment. They Leverage The SilverSneakers brand as a significant differentiator off several of our top clients Incorporated the SilverSneakers brand into their sales messaging and broker and agent training their commercials and member materials specifically highlighted are virtual offerings as a key differentiator of their twenty Twenty-One benefits and a valuable feature for their beneficiaries to use during the pandemic.
The combination of physical locations and digital Solutions will be a permanent part of our offerings supporting our members across setting in gym at home and in the community month while I am excited about our ability to grow the business through digital means our gym Network and are partnering locations will continue to be a foundation of our Core Fitness pillar.
Throughout twenty-twenty are dedicated Network team was able to maintain the largest national senior Fitness Network in the country. We ended the year with over 16,000 participating locations and only a 1% reduction from a year ago. This is a testament to our deep relationships within the gym industry as well as the flexibility of our business model which allows us to add locations quickly and ensure we off the best possible SilverSneakers member experience. Additionally, we were able to extend the terms of several key Jim contracts during 2020, which positions us well for the omni-channel future
Turning to Prime our Network ended 2020 with more than $12,600 partner locations in the fourth quarter Prime accounted for 21% of Revenue. We ended the quarter with 218,000 paying Prime subscribers as expected as Adam will discuss later 20-21 is expected to be a rebuilding year for prime or commercial insurance and large employer relationships are home and our gym network is robust and durable, we will first focus on stabilizing the subscriber base then pivot to growth while employing new digital features for prime rib, tremendous opportunity for further subscriber penetration, and I am confident we will build this business to be even better than before as I look forward to the year ahead of us. We now have the financial flexibility to take deliver on our strategy. Thanks in part to the successful sale of nutrisystem's and significant reduction in our debt the focusing of our health care business into a streamlined organization Prime for growth wage.
Our unrelenting drive for delivering strong operating results activity is poised for growth and will continue to deliver differentiated value to clients members and shareholders Thursday. We have started the transformation from being a fitness and Jim access company into a leading member focused platform engagement company with omni-channel capabilities. We will engage members to our trusted thirty years SilverSneakers brand and do so beyond physical fitness, utilizing new tools new data and new experiences. We will offer a broad assortment of solutions Fitness and other important issues of Health and Wellness. These Solutions are highly curated to members individual needs fundamentally activity will be a member-centric company that is evolving to meet member needs in The New Normal leveraging our market-leading brand as well as digital and in-person assets capabilities and expertise as you will see in today's supplemental deck our 2021 strategic priorities include mods.
I think our engagement platform.
Accelerating our Core Fitness programs expanding our digital transformation growing or a Whole Health living network and piloting new offerings through additional Network Partners the backbone of our silver sneakers connect strategy will be the engagement platform enabling us to develop a personalized data-driven set of experiences for our members customized to their interests needs and goals all in a way that maximizes value for our clients and benefits for our members as our platform learns and engages. The member. We will be able to drive utilization and engagement off extend our value proposition beyond the gym our individual member engagement platform will be supported by a sophisticated technology backbone and data analytics capability.
We are implementing snowflake a well-regarded cloud-based data platform solution and partnering with red point a leading omni-channel personalization firm to help us deliver the right member experiences at the right time. We are confident the engagement platform will accelerate and amplify every part of our strategy for example are additional Network strategy, which I will cover in more detail in a moment could support many of the month to traditional and expanded supplemental benefits offered under Medicare Advantage. The opportunity to aggregate fragmented networks is more meaningful when offered through an engagement platform as more members will be aware of the benefits and those benefits will be easier to access and utilize the engagement platform will also be a means to diversify Revenue beyond our current Fitness and Jim access offering a good example is an upcoming new product offering that will allow members to connect socially through the platform over shared interests either virtually or in person
Our analysis shows that this type of connection reduces loneliness and social isolation among are participating population members will be able to see friendly faces meet new people share a conversation connection and laughter. We will move decisively and select the right engagement platform to have in place by the middle of this year. This will likely require investment both organic and inorganic. We have already vetted several opportunities and will continue to refine our selection. We do not expect it will meaningfully move our leverage ratio profile which we plan to maintain below 3.0 times going for life.
Are injected with the Core Fitness strategic pillar is to drive member activation and engagement in Fitness while introducing new programs to expand our reach an important part of this strategy is to improve engagement rates by offering Alternatives in physical fitness such as community-based Fitness as we mentioned last quarter, we found that members expect to engage in non Jim Community locations more often post COVID-19.
An excellent new member acquisition vehicle, but it also increases you.
Association and engagement many members will not go to a gym but really enjoy being able to work out in the comfort and privacy of their home at the same time when the loyal gym-goers want a diversion from the gym a bad weather scheduling constraints or other factors virtual is a convenient and easy option taken together this position tivity. Well for an omni-channel New Normal where we continue to have the leads brand in senior Fitness
or digital transformation pillar is the expansion of our offerings to attract new members and extend the activity of enrolled members fundamentally We Believe introducing non Fitness digital offerings will attract a broader and more diverse set of new silver sneaker in Rollies using the engagement platform in a i tools will offer new condition specific programs and services that will cater to members unique health and wellness needs and interests potential member engagement opportunities include virtual personal training interest-based social connection opportunities mental enrichment and personalized member of content off within the Whole Health living. We are re gentrifying our platform and expanding the solutions and services offered. This will allow us to pursue additional eligible lives and revenue. We will ensure Investments aligned with the highest growth areas focusing on benefits and utilization management for acupuncture and massage therapy. This is a business we understand. Well, it is experiencing growing demand resulting from yep.
Avoid epidemic and Medicare National coverage determination changes as payers and providers seek to provide nonpharmacologic alternatives to pain management. The final pillar of our strategy is Tom new offerings via new networks our ability to form cohesive networks and highly fragmented Industries allows us to Branch out and bring scale to payers in areas where it is challenging to do so
examples include in-home services nutrition offerings and physical therapy among others. We're looking for the right Network partners with the right capabilities and member experiences our Capital allocation approach will likely mirror that for the engagement platform that I mentioned and include some level of prudent and disciplines Strategic investment to be clear any external investment would likely be bolt-ons and not a transformative opportunities in conclusion, the fundamentals of our business are strong as more individuals age and to Medicare that demand for high-quality engagement will only increase our 2021 guidance reflects growth in revenue and adjusted ebitda and our balance sheet affords us the financial flexibility needed to accelerate our growth. I'm confident that our strong foundation and the Investments we have made and will continue to make will drive Diversified and sustainable growth now now turn the call over to Adam.
Thank you Richard. Now one of the fourth quarter results for continuing operations revenues for the fourth quarter were one hundred point six million dollars a decrease of 37% off from the same. In 2019. Silver sneakers. Revenue was approximately $74 down 39% as expected compared to last year due to fewer new generating visits as a result of COVID-19 similar to last quarter SilverSneakers Revenue profile during the fourth quarter of 2020 was substantially different from the same period last year.
revenue from
Member per month fees represented 58% of our total SilverSneakers Revenue compared to 34% the same period last year.
We ended the quarter and a year with sixteen point seven million Health Plan members eligible for silver sneakers and increase of 9% over 2019.
The fourth quarter ended with 3.6 million enrolled silver sneakers members total silver sneakers visits were 10.1 million during the fourth quarter of 2020 this compares to 25.6 month last year with monthly average participation decreasing during the quarter to 2.6% compared to 7.7% last year.
Within the 10.1 million visits approximately 804000 visits for digital during Q4 77% of her gems reported at least one visit a note January 20-21 virtual visits of over 400,000 where the highest monthly total we have seen and in-person visits for January twenty Twenty-One or in line with our expectations Each of which is a very good start to the year.
And now the prime we generated 21.5 million of Revenue in Q4 a decrease of 33% from last year. We ended 2020 with 218,000 paying Prime subscribers compared to three hundred forty-three thousand subscribers at the end of 2019 this subscriber decline accounted for the majority of the year-over-year revenue decline.
We had approximately 2.5 million gym visits from Prime in Q4 2020 compared to 4.8 million in the prior year.
ProHealth living during Q4. We recognized 4.9 million dollars of Revenue.
In summary COVID-19 and the related Jim closures negatively affected our silver sneakers and Prime revenue for the fourth quarter as expected. Also, we deployed a fourth-quarter marketing campaign up approximately two million dollars to promote awareness of the silver sneakers virtual offering and help drive digital visits are continuing operations generated adjusted ebitda of 35.2 million dollars for Q4. And for the year, we generated 147 point nine million dollars of adjusted ebitda from continuing operations.
Turning to our year-end balance sheet and cash flow. We ended the year with cash on hand of $100 and term loan debt of $467, which took his ratio of 2.36 times. Well below the maximum ratio of 5.25 times as calculated under our credit agreement.
In January 2021. We paid an additional $45 million dollars of principal amortization which makes our next quarterly required quarterly payment due in December of 2022 age.
Now turning to our 2021 guidance. We highlighted our 2021 guidance in our earnings release and our supplemental materials this afternoon.
Total revenues are anticipated to range between $455 and $485 million dollars. We estimate adjusted ebitda from continuing operations team range between $150 and $155 million.
Our assumptions for Silver Sneakers performance during 2021 are as follows.
Total SilverSneakers revenue is expected to represent approximately 78% of total revenue. We expect to end 2021 with 18 million eligible members month. We expect annual SilverSneakers visits to range from $59 billion to $64 billion including digital visits with participation levels reaching close to seventy percent of pre pandemic levels at your end.
Regarding the shape of the year more SilverSneakers revenue and visits are expected in the back half of 2021 with over one-third of annual visits projected in queue for this visit pattern is driven by our assumption that the COVID-19 vaccine should provide some degree of normalcy allowing more members to return to the gym and participate in SilverSneakers community-based fitness programs month.
switching to our assumptions at Prime
Total Fitness revenue is expected to represent 17% of total revenues based on our current subscriber levels. We are projecting an average subscriber count of 190000 to 200,000. We are not anticipating a meaningful growth in total subscribers during 20-21. We expect annual Prime visits to range from ten to twelve million.
Turning the Whole Health living total. Whole Health living revenue is expected to represent approximately 5% of total revenues with more Revenue in the back half of twenty Twenty-One as compared to the first half.
Total company gross margin as a percentage of revenues is expected to begin the year at approximately the same level as Q4 of 2028 then decrease through the year due to increasing silver sneakers gym visits and the related costs.
Total company gross margin dollars and adjusted ebitda dollars are anticipated to be slightly higher in the back half of 2021 compared to the first half as more sneakers visits from hybrid members drive more gross margin dollars regarding other components of guidance. We anticipate 20-21 marketing expense and wage to be less in total dollars as compared to twenty twenty.
Paid free cash flow to range from 50 million to sixty million dollars and capital expenditures to range from $20 to $25 million dollars while the 2021 capital expenditure rate is higher than historical levels this year reflects a combination of delayed investments from 20 20 normal course Investments for 20 21 and New Jersey Investments to drive sustainable profitable growth that Richard outlined earlier.
With regard to our expected debt leverage ratio. It is Our intention to maintain a leverage ratio below 3.0 times as we grow the business through both organic and non-organic mean. I'll now turn the call back over to Richard Richard. Thank you Adam. Well now open the call to your questions operator 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 while we compiled the Q&A roster. Your first question comes from a line of July and dressing with Credit Suisse your line is open.
Hi, good evening. This is Ashley Germaine Brown filling in for jalando. So first on your guidance during your prior quarter, you had enough confidence in a guidance curious. What factors have emerged. I can give you increased confidence in giving full year guidance. And can you provide some color on the puts and takes that drive the upper and lower bounds of that month sales and Utah. Yeah. Sure. Yeah. Sure. Hey great great to talk to you man. Yeah, so what gives us confidence if you if you kick through and there's some supplemental information in the in the deck wage today that may be helpful. One of the key items is the eligible members. We we began the year where we thought we would begin and we expect to in the year with eligible members of 18 million and that's that's a critical component. Another critical component is what we mentioned as prepared remarks are January visits have started off very well over 400,000 virtual visits in January and are in person gym visits dead.
I've been right on our expectations and you know aside from the weather in February which you know, we're uh obviously was going to be an impact. We are still looking good. So the the start of the year has been as expected Prime has began the year as we've expected and as as has Whole Health living and so with that coupled with the engagement information we've received from members in terms of the desire to return to the gym the desire to return to community Fitness the desire to continue with virtual. We feel like our guidance expectations are are are are not unreasonable at all. And and with a dog, you know, obviously a more of a back-end view with more visits in the back half year more margin dollars the back half but feel like this is uh, it's clearly have enough visibility to give the guidance we gave today.
Got it, and on your strategic transformation to remember Central platform engagement company. Can you provide some color on the level of resources? I am currently available in house versus those that you'll have to partner with to get access to and those that the company will invest internally for
My name's Richard good question. So it's going to be a combination of both. I would say that you know, we right-sized the organization to be ready for growth and you know have have folks on the team who are really focused on our digital offering and our virtual sweep. That's been that's been successful as you've seen from from the performance for this year. But a lot of the expertise we are going to get from our partners, you know, as I mentioned snowflake down and read point. We also have some other companies that are well-known that we're that we're bringing on board to help us in our in our platform capabilities. So I would say the majority of the expertise will come from Partners, but we've kept them, you know small and mighty team here within within tivity is whereas we're orchestrating the overarching, you know member journey and experience we want to create and then using outside capabilities to help us celebrate that
Perfect. Thank you very much.
Your next question comes from the line of David Stipe with Jefferies. Your line is open. Hi there. Good evening. Thanks for the question Richard. I'd like to just hear a little bit more about the wrong with that question added with a number Centric activities. Can you just get a simple concrete examples of things that you're looking to do there and how Timothy can monetize those activities of those things that are going to be paid for by the senior in some way or from other partners other or other plans? Perhaps just to give us a little more sense of what that's going to look like over time off. So, I think they appreciate the question, you know, the way we're thinking about this is the engagement platform really drives value across all of the pillars that we put in the the supplemental materials. So it's it's a way to bring, you know, eligible participants in and engage with them in a very personalized way. And so, you know getting you know the information from the member getting whatever needs and
Interests they have and and I'll give you an example here at a moment and using some of our new capabilities with our partners so that we can increase awareness get more conversion get more engagement and utilization to page quick examples one would just be you know, social connection and social offerings, you know, a lot of our health plan partners are are really worried about social isolation and loneliness in in this population not just the COVID-19 off in fact, but may be exacerbated by that but a problem even and then it and so by launching this engagement platform and having you know, social connection opportunities for our members, we believe that there's value in that and the you know, our our health men Partners find Value in that is as well. And so, you know more to come on that is we as we begin that that process and that offering in in the market second would be one like nutrition, you know, we all have our wisely well brand which is more on food distribution, but we we could pivot more toward behavior and more toward, you know, upfront content and information and engagement not just wage.
Food delivery and then engagement platform would enable us to do that. And as you know nutrition is a is a covered supplemental benefit to your question on you know, where the where the pay comes from, you know, generally my bias is is not the member and it's more you know, like it is today traditionally through plans, but over time there could be other
You know entities that that also get a benefit from us being able to engage this population in a better way. So if I think about at-risk groups or I think about, you know other partners in a market or other stakeholders in the market that are helping this population. Our platform can be a great way for people to get that engagement and get that utilization. Now we wouldn't be maybe providing that service to you know, the the partner maybe doing that, we would be the conduit by which they could get the exposure.
Okay, great. Thanks for that color. Maybe a question for atom about the silver sneakers eligible Bridge. So if I think about jumping from $16 at the end of the month 2020 up to 18 million about seventy percent growth there. Can you talk talk us through the bridge components there? I know you guys have talked about some new winds that were going to be $350,000 or so new live. Then you'd have normal market growth on top of that. So, you know putting those together I could imagine and it's not hard to Envision where where you could have a silver sneakers eligible grown know of double-digits. Well north of 10% This underlying Market is growing 9% this year. So is there some offset to that or is guidance? Perhaps just by the conservative side for now is as you're going through the plan change.
Yeah, you you hit the main components say then you're right. The biggest bridge component is is the open enrollment period right and so that's the period of time where members have from October to December to switch plans and and start a new game plan on the new calendar year January one and so for us we started the year Well ahead of the where we end at 2820 16.7. And so, you know, we're a little shy of 18 million which is typical every year and every month we have agents folks that are turning 65 to become eligible for Medicare that can join Medicare Advantage plan. And this this is a case every year we bought a ramp up as those agents occur to get today eighteen Million number by the end of the year.
Okay, thanks much.
Your next question comes from the line of Shawn Weiland with Piper Sandler your line is open. Hi, thanks for taking the question. It's actually Jeff on for Sean. I think our first question is in the past. You guys have spoken about some high-frequency members in the silver sneakers membership driving a significant majority of the visits. Go to the gym kind of five or six or seven times a month. Can you just give us maybe an update on the prevalence of those high frequency members and just what they've been doing through the pandemic and what your expectations are for them twenty one and thereafter. Thanks, Jess Richard here. I'll start adding if you want to clean up here. I think first of all, I would say that our average participant per member has has been dead stable. If not slightly higher, you know through pandemic for those that are actually going to the gym which stands some some some rationale for that ride that people that really want to go to the gym or finding a way to do that job.
Through the pandemic the virtual channel is is showing even a higher propensity for frequency, which is a good thing. So, I think it's the ease of the of the
Vehicle, you know easy to to use our tools to be able to do the the workout plus the red home, right? So they don't have some of the barriers that may prevent them from hitting that frequency when they're going to to a regular gym. So what I would say is that the behavior is that the the average visit for participant is stable is not a little higher through the pandemic we would expect that to come back to some other levels, um, you know back to previous levels, but maybe a little bit off with our engagement platform coming online and then the digital seems to be a higher frequency Channel, which I think is a positive thing for for plans and for members but Adams anything you want to add their yeah. The only thing I to add jetpack, it's one of the components of the Core Fitness strategy is to help improve that frequency even further. And so I think it's it's those tools are deployed over the year the you know, the omni-channel platform that we're putting into place this year going to be critical to that have member-centric customized Communications to the members of you being met as it just you know, how much you know an email or phone number.
Patient, uh, you know from even instructor can uh produce an additional visit and engagement experience. So I think we've got outside they're happy to have where we are we talked about I think in January how strong that a vtp was, but I think we we can do better.
Awesome, and then just to follow-up. I think we heard that you said 20 21 marketing and sg&a should be less than 20 20. Can you just help us understand that, but the new engagement engine coming online and maybe the the, you know responsibility to inform members that it's um safe again to go to the gym and and the things are kind of open and operating as usual.
Hey, just call me here. We will not be using television and in 2021, at least that's at our plan at this point. So there's your wage increase from 2022 to 2021. We're planning on using digital to support our marketing effort. We want to be more precise to use very targeted marketing approaches with a search and social and and email and other digital techniques. Now. Will Adam mentioned in the prepared remarks that the marketing will be loaded a little more heavily toward the back half. We want to reserve something dollars for when people feel more comfortable going to the gym so that we can put some promotional efforts in place at that point. I think it's just really focusing more higher Roi, you know wage strategies then maybe some others. I would say TV. You actually was we use some TV in in Q4 or quite successfully to help the build momentum here, but are billed on the on the birth.
I'm in the marketing side is is somewhat predicated on you know, vaccine distribution of people wanting to go back to the gym the horsepower Firepower that Tommy just mentioned and also, you know, the the digital means by which we use those in engagement capabilities.
Thank you. That's so helpful.
Again, if you would like to ask a question, press star one on your telephone, your next question comes from the line of the Chromecast with Guggenheim. Your line is open Monday. Yeah, thank you for taking the question. I wanted to start on the free cash flow guidance for 20 21 and Adam. I think you talked about a handful of drivers around here that may be a little more unique. You just walk through those in a little more detail, and I guess on a longer-term basis as you think about the business going forward you actually think about the free cash flow profile of the company relative to what we distort Khaleesi in in the health care segment. Thanks. I know you could really just Bridget Vikram with a few key components. So if you start with adjusted ebitda, you've going to have cash taxes, you're going to have cash interest you're going to have cat facts. I think the other big component is is probably an Egg get a move on working capital that's assumed in there. You know, it's our visits ramp-up. There's a differential in you know, when we get paid versus when we pay plan or when we pay Jim's rather. We pay Jim's fast food home.
Typically and so as visits ramp, there may be a little bit of a dynamic in the back after year which puts pressure on that. I think I think from historical perspective, you know, we're you know free cash flow was wage is higher. I think you have to take an account. We didn't have any cash interest to speak over at least a lot less and we had a a uh paying virtually no cash taxes as well. We had it in o l that had been carried off from our divestiture with healthways there. There are some kind of unique Dynamics I think from you know, three or four years ago that aren't aren't here today which bridges that difference.
Okay, great. And then maybe just one follow-up question. I think historically talked about each year. Just seeing some natural inflation and in the gym cost that you pay to your network Partners. Just curious if you can talk about how that came out in 2021 and if there's anything unique around that and and this year and and any updated thoughts on that front, thanks. How are you from Tommy our conversations with the gyms that have been fashionable and and constructive and and what really a very turbulent year, you know, every network has it puts and takes the majority of our larger. Jim Partners are in multi-year agreement that we feel good about that from time to time there there's pressure but this is Court our business we've been doing this effectively for for 30 years. So we're comfortable with how those discussions are going down.
Great. Thank you.
There are no further questions at this time. I will turn the call back over to Richard Ashworth.
I just want to thank everybody for their time listening to our Q4 2020 earnings release and have a good evening. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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