Q2 2021 Tivity Health Inc Earnings Call
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Good day, and thank you for standing by and welcome to net to that he health Q2, 2021earnings conference call at.
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After the Speakers' remarks, there will be a question and answer session.
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I would now like to hand, the conference over to your speaker today Massillon.
Vice President of Investor Relations. Please go ahead.
Good afternoon, and welcome to the Tivoli Health second quarter 2021 financial results Conference call.
Before we begin if you do not already have a copy of the earnings release supplemental information and related 8-K filed with the SEC are available on our website activity health Dot com.
I would also like to highlight that our financial presentation within today's press release and supplemental materials are reflective of the divestiture of the nutrition segment. Therefore, all results of operations related to that business are now reported within discontinued operations.
To the extent any non-GAAP financial measure is discussed in today's call. You will also find a reconciliation of that measure to the most directly comparable financial measure calculated in accordance with GAAP in.
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 <unk>.
Including statements among others regarding activity health expected quarterly and annual operating and financial performance for 2021 and beyond.
For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements without limiting the foregoing.
The words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
You are hereby cautioned that these statements may be affected by the important factors among others set forth activity health filings with the SEC 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 president and CEO Richard Ashworth.
Good afternoon, and thanks, Matt. Thank you for joining the call today to discuss <unk> health second quarter earnings results. Joining me on the call is Adam Holland, Our CFO, Tommy Lewis, our CFO and Matt <unk>, who you just heard from our VP of IR I want to start by thanking all of our activity health colleagues, whose dedication discipline and <unk>.
<unk> has led to many accomplishments in my first year as CEO activity health over.
Over the past year, we responded to Covid <unk> impact on our business with the safety of our colleagues is our number 1 priority and continued to deliver important solutions for our members and our partners, we launched and built a strong virtual fitness offering we successfully divested nutrisystem, allowing us to focus on growth in our core business and significant.
Delever the company, we recently refinanced our debt, which increased our financial flexibility and we invested in digital engagement tools positioning activity to become a member centric platform engagement company with omni channel capabilities, using our new tools, new data and creating new experiences. These are just a few of the accomplishments.
Im proud of and I believe the best is yet to come as you saw in today's press release, our performance for the second quarter of 2021 was characterized by a stronger than expected recovery in both our silversneakers and prime businesses, and we reported revenues of $121 million and adjusted EBITDA from continuing operations of <unk> 40.
$1.5 million Silversneakers.
Silversneakers revenue for the second quarter increased by 85% from the prior year when the pandemic had four-star Jim partners to temporarily closed for much of the quarter total silversneakers visits continued to gain momentum growing 24% over the first quarter of 2021 to $15.3 million in person visits of $14.5 million.
Delivered 30% sequential growth from the first quarter as expected. This robust return to the gym contributed to a sequential decline in our digital visits consistent with industry trends.
At 900000 during the quarter.
The mix shift to more in person visits underscores the important social aspect that silversneakers experience and our brand provides.
As immunizations of adults over 65 continued to be the highest in the nation with 90% having received at least 1 dose. According to the CDC. We remain confident in our expectation that in person visits will continue to accelerate through the remainder of 2021.
Our silversneakers pulse surveys indicate that our members increasingly intend to return to the gym. This improvement in visits and participation during the second quarter along with continued increases in visits through July gives us confidence that silversneakers is on track to achieve our annual expected total visits for 2021.
Our gym network remains robust and we ended the second quarter of 2021 with approximately 16000 silversneakers locations in line with where we started the year. This compares to an industry wide contraction in Jim's by approximately 17% over the past year on average our national Gym network offers member access to <unk>.
Silversneakers location within 3.5 miles of their homes and 1.5 miles in urban and suburban markets. Additionally.
Additionally, our network renewals have been progressing well this year with multiyear contracts, which provide both strong visibility and stability.
Partnerships reflect our share goal to raise the bar on senior wellbeing as seniors continue to return to the gym as part of their health and wellness goals.
Our virtual visits of nearly 900000 are an important and growing channel for our Silversneakers members.
In the first half of 2021.40 per cent of the participants in our live with instructor virtual visit had never participated in silversneakers before compared to 25% of in person participants demonstrating that our proprietary virtual channel attracts engages eligible silversneakers members who may not.
Otherwise have engaged with us our recent surveys indicate that members will continue to use both virtual and in person workout reinforcing that our omni channel strategy is the correct path forward and is aligned with the needs and preferences of our members omni channel as part of the new normal and in this context, our Silversneakers brand demonstrated.
Its leadership and breadth across in person and virtual channels. Additionally, I'm proud of our team's agility and identifying and executing on this opportunity. Finally, we continue to believe that our virtual channel will provide a competitive advantage and add added financial stability of COVID-19 variance or outbreaks negatively.
Effect in person visits in the future moving.
Moving on to Prime our gym network remains strong in our prime business continues to exceed our expectations as subscriber rates improve we ended the second quarter with approximately 12500 partner locations similar to where we began the year and nearly 228000 active prime subscribers slightly higher than where we began.
The year, we now anticipate that our subscriber base will be approximately 230000 for the remainder of 2021, which positions us nicely to continue growing subscribers in January at the beginning of Jim season, our second quarter Prime visits increased sequentially by 7% to $3.3 million from $3.1 million in Q1.
And our prime subscribers, whose average age is the early forties continue to return to in person gym visit at utilization rates nearing pre COVID-19 levels.
Innovation is an important part of our prime strategy and we're pleased to announce a new partnership with well known brands less mills, an internationally recognized fitness content provider. We expect this partnership to benefit us by providing new digital capabilities, attracting new subscribers and driving increased retention.
Our focus for the remainder of 2021 will be on continued deployment of these new virtual features which we believe will broaden and further differentiate our value to subscribers and our plan partners.
Next I want to touch on Silversneakers renewal season. Despite the uncertainties of the pandemic has brought we are pleased with the strength of our strategic client relationships. This year's renewal season was successful in the high 90% range consistent with prior years and some of our largest accounts are now committed to contract lengths longer.
<unk> than our average duration.
United Health Group recently notified us that they will reduce approximately half of their group lives next year, reducing 2022 revenue by approximately $20 million. While this was somewhat unexpected we continue to have a strong relationship with United and I'm pleased to say, we're gonna now anticipate that will renew the contract beyond 2020 to retaining a portion of the group lives with <unk>.
Silversneakers, we are well positioned for 2022 and expect to drive revenue growth.
And adjusted EBITDA growth as well as free cash flow. Thanks to progress we have made on several fronts, 1 strong client renewals to robust geographic expansions and new lines of business with our existing clients.
3 new client wins, which include competitive takeaways for the addition of Silversneakers connect with 2 large plans and 5 the launch of our Omnichannel martech capabilities, which will allow for data driven personalization.
This progress is bolstered by organic growth in Medicare advantage and the expected continued recovery in silversneakers utilization and prime growth now.
Now moving to an update on our strategy Youll recall that we first articulated a strategy in January to expand beyond the gym access company into a member focused data driven engagement platform company. Our objective of engaging members through our trusted 30 year Silversneakers brand beyond physical fitness by utilizing these new tools new day.
And new experiences is beginning to materialize in July we deployed our data infrastructure and omni channel marketing platform on schedule, we will leverage tools from these platforms, along with our expertise and consumer research segmentation and data driven personalization to engage members in entirely new ways.
And seek to activate eligible members who have not previously participated with US we will continue to focus on testing and optimizing for personalization that drive increased revenue share.
During future calls I'll provide specific examples of how our digital engagement strategy can drive increased utilization in 2022 as I mentioned earlier I'm pleased that we'll begin combating seniors social isolation with our silversneakers connect offering which delivers a personalized social network for our seniors intended to improve health and wealth.
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The pandemic dramatically exacerbated feelings of isolation and we are excited and ready to help our members make meaningful social connections Silversneakers connect will go live with 2 large clients and beginning in January of 2022, and I look forward to updating you on our progress in conclusion I'm pleased with the strong growth in revenue and visits.
During the second quarter underscoring that our expectations for a return to pre COVID-19 participation level. In 2022 are on track for continued momentum on our strategic initiatives is advancing our progress toward becoming the modern destination for healthy living I continue to be impressed with our team and their focus and attention on.
Our members on their path to better health I'll now turn the call over to Adam.
Thank you Richard today, we reported adjusted EBITDA of $41.5 billion, reflecting the continued strength of our business.
Revenues for the second quarter were $121 million.
Silversneakers revenue was $97 million, an increase of $42 million or 85% over the prior year period, driven by an increase in revenue generating visits as.
As expected revenue from fixed per member per month fees declined to 47% of our total silversneakers revenue compared to 88% in the same period last year.
We expect this percentage to continue to decline as we move through the remainder of 2021 and generate more member visits as part of our overall revenue mix getting us closer to a more typical mix as the country continues to emerge from the pandemic.
We ended the quarter with 17.7 million health plan members eligible for Silversneakers and increase of 8% year over year.
And we are on track to meet our expectations of approximately 18 million eligible members by year end through monthly agents <unk>.
Silversneakers visits were $15.3 million during the second quarter of 2021 compared to $3.1 million for the same period last year with monthly average participation of 3.8% compared to 1.1% last year.
Within the $15.3 million visits 875000 visits were live virtual with instructor.
And now to Prime we generated $23.4 million of revenue in Q2, an increase of $4.3 million per the same period last year. We ended the quarter with 228000 active prime subscribers compared to 235000 subscribers at the end of the second quarter in 2020.
Although we average a lower subscriber count during the second quarter of 2021 compared to last year.
<unk> revenue was higher due to the reactivation of certain large corporate clients, such as Walmart, which had temporarily suspended its prime program during the height of the pandemic last year.
We had approximately.
<unk> $3.3 million gym visits from crime in the second quarter of 2021 compared to 800000 in the prior year period.
For home health living during Q2, we recognized $5.7 million in revenue a slight increase to last year.
And finally other revenue decreased by approximately $9 million over the second quarter of 2020 due to a decrease in wireless wisely, well revenue as well as revenue from our well being program with a large employer.
Consistent with our remarks in last year's Q2 call. The revenue for this well being programs did not recur this year.
Turning to our Q2.2021 balance sheet and cash flow. We ended the second quarter with cash on hand of $24.2 million total liquidity of $124 million and a leverage ratio of 2.18 times.
As previously announced we successfully completed refinancing of our term loan and revolving credit facilities for $400 million and $100 million respectively.
The new credit agreement strengthens our financial position and provides increased flexibility by lowering our annual amortization and extending the maturity day.
It is also expected to result in cash interest savings of over $3 million during the first 12 months.
As of June 32021, net debt totaled $361.4 million.
Our first quarterly amortization payment of $1 million is due on September 32021.
Now turning to guidance, we affirmed our 2021 revenue and adjusted EBITDA guidance in today's press release, given our continued strong recovery in both Silversneakers and prime.
As we've mentioned throughout the pandemic, we anticipate our second half total gross margin percentage will decline relative to the first half of 2021 as the number of in person Silversneakers and prime visits increase.
We also anticipate a slightly elevated level of operating expenses compared to the first half of 2021, driven by investments in omni channel marketing Silversneakers connect and data capabilities related to the engagement platform.
All of which are investments intended to drive growth in 2022.
Together these items are expected to reduce our adjusted EBITDA in the back half of 2021, which is why we are maintaining adjusted EBITDA guidance at the top end of $155 million.
Finally, our 2021 guidance does not reflect any impact for our ownership and share care.
Day, we own approximately 11.1 million shares of share cares common stock.
From an accounting standpoint, beginning in July of 2021.
We record these shares at their fair value in accordance with U S. GAAP and recognize any changes in fair value and net income as unrealized gains or losses, there can be no assurance as to what value our shares will have in the future or when we will sell our shares.
I'll now turn the call back over to the operator to open the call for Q&A clean.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number 1 on your telephone keypad again that is star then the number 1 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Steve Halper with Cantor Your line is open.
Alright, just a couple of financial follow ups first on the United impact for 2022.
You said it was $20 million.
So if you annualize that you say, it's a $40 million contribution this year, but is that how should we think about that relative to COVID-19 was was that impacted by COVID-19 or is the $20 million assuming that it was a more normal year in 2022.
Hey, Steven Great question is Adam.
The United business was a PM TM business was not affected by Covid to the $40 million in revenue that we have this year, which we've disclosed before.
Essentially getting cut in half for next year, So we're going from $40 million to $20 million.
It's what we expect in 2022 from a revenue perspective.
Then.
How would you characterize.
Margin on that business.
We can't get into specific margin and the dynamics with that.
Specific customers, but I'd say, it's generally in line with our other major clients.
And then last question over the last 2 quarters your accounts receivable have.
Crept up a little bit sort of pinching the operating cash flow could you just sort of explain that.
Yes part of that is the dynamic Steve.
When we get reimbursed from our payers versus when we pay our gems and as last year as all the gym shut down we basically saw a go does it go to.
Zero, because we were collecting and had a big cash infusion and didn't have to reimburse the gyms, because with Jim's were shut down.
So this year is that gyms are spending back up what we're seeing is a little working capital headwind, where we're paying the gems faster than we're getting reimbursed from the health plans now it's not a it's not a big difference.
In terms of number of days, but when you've got a dynamic where you're ramping up gym visits as rapidly. As we are you are seeing that headwind now what we see in the back half of the year. Steve is that headwind is diminishing and so that's not going to be as big of a working capital drag that you saw in the first quarter day was a little it was a lot less in Q2.
Okay. Thank you.
Yeah.
We have our next question coming from the line of Ryan Daniels with William Blair. Your line is open.
Hey, guys next speaker, Brian Thanks for taking my question.
I guess to start.
Do you guys know kind of what portion of those UNH why those eligible lives that are coming off.
Active or do you have any sort of kind of.
Weighted quite set out and how many.
Eligible lives are kind of in that 20 million, that's coming off next year.
Yeah, Thanks, Nick to Richard.
Pretty pretty consistent utilization across the lives that will be remaining versus staying so I would say, they're kind of in the mid kind of fairway position. If you think of it that way and in terms of the lives. It's really half the lives kind of half. The revenue is the way to think about it so it's coming down.
And even though they were a <unk> client a lot of the.
The clients were adding new for this year also <unk> clients. So we are seeing.
Our hybrid is going to grow because our big clients continue to grow and getting more agents and so getting to more markets. The hybrid model is the 1 that aligns our incentives with payers I think all in with the with the United stepping back a little bit.
Pretty much in the middle of utilization hospitalized and half the revenue.
Got it thanks, and then looking back over the last you know.
Call. It 2 years, it's been.
Fairly modest but I'm wondering.
When you guys see yourselves more heading into kind of a steady state.
Now with the virtual <unk>.
Aspect and in person, where do you kind of see your target gross margins leveling out.
A more of a steady state over the next call it 3 years.
So I'll start and then let Adam weigh in here the way I think about that is on the core fitness business I think will that margin Adam weighted but I think that margin will get back to kind of pre COVID-19 consistent levels and we see the per.
And takes of the supplier network, our gyms and virtual which is helpful in margin.
Zvi was getting our payors.
For good value, but as we think about the non fitness revenue I see I see theres areas to offset some margin compression with some consistent or maybe slightly higher margin to jump all of that together will depend on how well that non fitness revenue takes off and to what degree, but Adam anything you want to know I think any more to add we just feel confident we can certainly get back to.
Of that circuit.
30% gross margin level, and then exactly what Richard said upside opportunity with the new digital initiatives on top of that.
Great. Thanks, guys I appreciate the color.
Thanks, Nick.
Again in order to ask a question seem compressed time, then the number 1 on your telephone keypad.
Our next question coming from the line of Matthew Sham with Piper Sandler Your line is open.
Hey, Thanks for taking the question.
Maybe 1 for you Richard as you've talked about this transition from a fitness company to engagement company..1 common theme has been this.
To employ a test and learn strategy as you rollout new adjacencies.
I'm wondering what you've been able to test and as a result learned so far and how thats helped inform where youre going next.
Yes, great Great question, Matt. Thanks, I think there's a couple of things from from my point of view.
1 is that we needed to get the foundational elements in place. So now that we've been able to get.
The Martech stack in the omni channel capabilities in in place this new kind of test and learn discipline is 1 that we're bringing to the market and that philosophy is 1 of getting member specific feedback and putting the investment dollars to make sure. We're getting the appropriate returns of course, but we're actually creating those right experiences we've.
Got some really good partnerships mills is a great example, debt we've got a few others, we haven't maybe publicly announced but they're really helping us in our capabilities too.
To deliver new experiences for our seniors the big 1 is helping us drive silversneakers connect in the marketplace. So.
What I've seen with the 2 large clients buying onto connect and our early tests and trials there is got a.
Got a lot of optimism for our ability to engage.
Seniors outside of fitness the other big thing is trying to get more people activated and what we're finding with these new tools is that there are activating a different subset of the eligible silversneakers population. So I think thats another positive with 40% of people engaging with us digitally being first time users for silversneakers compared to about 25.
<unk> percent for the ones that are going to the gym that tells US. This is a great activation channel and then all of that to say that once the engagement platform is fully up and running meaning we've got some more first party data a little time under our belt, we know exactly how and when to talk to them starting to activate the other services over time is going to be a big future driver of value creation.
<unk> for all of our stakeholders.
Got it Yeah, and then maybe just following up on that during the quarter you guys launched the biweekly senior healthy living survey kind of intended to be an always on barometer and then share that data with stakeholders has there been enough time to produce any actionable insights and if so how do you use them and if not how do you.
Kind of envision to use them go forward yes.
Yes short answer is yes, it's Richard again longer answer is.
We're working directly with the government to as we're getting into different phases of the Covid pandemic and really just putting some questions in our surveys that are specific questions that they may want answers to.
And we're also seeing a lot of our partnerships with other associations, whether that would be those that are focused on people that are aging in rural communities and we can target urban versus suburban the surveying capabilities is quite mature and modern so we're able to get all kinds of slices of data plus the amount of respondents that we get are statistically.
<unk>. So we're able to have findings that are actionable and usable, but actually where we're finding most of the values in our own business right now so.
Tommy's team really uses this data to help us.
Either lens the way, we're marketing and how we're doing it or even in our product and innovation team around what's the next.
Experience that we want to bring day members, we ask them what they are missing what they want or what they are experiencing and we're using that data in real time to help fuel some of our new our new product launches. The pilot we did with nutrition I think we announced that last quarter. The 1 before that is continuing to progress really well, we're using a lot of the data and insights to help us fuel that that pilot. So we.
Can have the right actions to take when the time is right to scale.
Got it I appreciate it congrats on the quarter guys.
Yes. Thanks.
Thank you there are no further questions at this time I will now turn the call back over to Richard Ashworth for any closing remarks.
I want to thank everybody, who dialed in to listen to the earnings I Hope everyone has a fantastic week. Thanks for your time.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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