Q4 2021 Tivity Health Inc Earnings Call
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Did you have at the house fourth quarter and full year 'twenty 'twenty. One earnings conference call is due to begin shortly and thank you for your patience. If you would like to ask a question. During the presentation. You may do so by pressing and stuff like buy one almost kind of think he passes.
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Ladies and gentlemen, and welcome to the activity health fourth quarter and full year 'twenty 'twenty. One earnings conference call. My name is Maxine and I'll be coordinating the crude state. If you would like to ask a question you may do so by pressing stuff and they'd buy one on you said I think he pad well now have japes your haste.
Madonna Vetch, Vice President of Investor Relations to begin ma'am. Please go ahead when you're ready.
And welcome to the activity, how fourth quarter and full year 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 helped 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.
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 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 1095.
Including statements among others regarding activity <unk> expected quarterly and annual operating and financial performance for 2022 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 helps 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. Thanks, Matt. Thank you for joining the call today to discuss <unk> fourth quarter and full year 2021 earnings results.
Turning me or Adam Holland, our CFO , Tommy Lewis, our CFO and Matt <unk>, our VP of IR.
Start by thanking all of our activity all colleagues for their perseverance disciplined and focus that delivered excellent results. During another difficult year. Our business is continuously adapted to the changing needs of our members and clients to expanded in person and virtual offerings.
Silversneakers members love our platform and now they will be able to engage with us in new ways with the recent launch of our mental enrichment and social connection solutions now onto 2020 one's results as you saw in today's press release, our performance in 2021 was characterized by strong results with revenue and adjusted EBITDA exceeding our expectations as we are.
<unk> financial guidance multiple times throughout the year.
Reported full year revenues of $481 3 million and adjusted EBITDA from continuing operations of $158 1 million.
Additionally, Silversneakers finished 2021 with a record high of $17 9 million eligible lives. We are very pleased with our 2021 financial and operational results and even more excited about what is coming in 2022.
Total silversneakers visits were $61 9 million in 2021, an increase of 30% from 2020, while we experienced some headwinds from the omicron variant during the fourth quarter. Our recent trends have strengthened through early February as the effects of omicron are subsiding and we continue to expect that in person visits will increase in 2022.
Further solidifying our confidence in 2022 adults over 65 continue to have the highest immunization rates in the nation with almost 89% being fully vaccinated and our silversneakers pulse surveys indicate that a significant percentage of members have returned oriented to return to the gem silver.
Silversneakers virtual visits grew to nearly $3 5 million in 2021, approximately doubling from 'twenty 'twenty driven by the outstanding experience of our proprietary programming designed by 13 national traders.
During the year nearly half of the participants that are live with instructor virtual classes had never participated in silversneakers before demonstrating that our proprietary virtual channel continues to be an efficient activation.
The combination of physical and digital fitness remains core to our strategy because it allows our members to use the benefit where they want it.
Jim at home or in the community.
Looking ahead, we expect growth in virtual engagement to be accelerated by the addition of social engagement and mental enrichment solutions. In addition to our virtual fitness programming.
Our fitness network remains healthy and growing as we ended the fourth quarter of 2021 with approximately 16000 silversneakers locations beginning.
Beginning in 2022, we significantly increased the size of our Silversneakers network by adding new customizable fitness brand for our clients, bringing our total size to approximately 23000 locations, making today's network the largest in company history.
More than a 40% increase since the end of 2021, we're encouraged by the continued interest from gyms to be partners in the Silversneakers network on.
On average our National network offers members in excess to location within three six miles of their home at 1.6 miles in urban and suburban markets.
Network renewal rates remain high and consistent with our historical trends and we continue to move.
Some partners to longer term contracts, providing both visibility and stability.
In the future.
Moving on to Prime we ended the fourth quarter with approximately 12500 partner locations similar to where we began the year and 223000 active prime subscribers pandemic.
And then it continues to have an impact on our business since COVID-19 restrictions are a key driver of membership cancellation. However, new member acquisition is delivering as expected, we anticipate getting back to modest growth as the pandemic subsides and employee health becomes top of mind for employers who offer the prime benefits.
Next I want to provide an update on our Silversneakers health plan relationships. We closed the 2021 renewal year strong with a high 90% retention rate and we retained our fair share of switching that occurred among our client base.
We also had a strong selling season for 2022, bringing our new plans consistent with prior years, we began 2022 with more eligible lives than we ended in 'twenty. One we expect agents and the addition of a large group plan by one of our clients. This spring, we'll continue to add growth in eligible lives.
We played an important role with our clients during the Medicare annual enrollment period. Our team has facilitated nearly 400 events in trading close to 12000 brokers across the United States, our clients love the Silversneakers brand for both its ability to improve the health of member as well as to be a tool for recruiting retention and engagement.
A testament to the value we deliver to our clients health care costs are 16% lower for our enrolled members and we have the highest NPS score in company history at 83, we.
We have a 96% number satisfaction score in addition.
Silversneakers is a supremely attractive recruitment retention and engagement tool for our clients.
Now moving on to strategy, we continue our evolution to offer more virtual solutions for seniors to conduct and improve their health, while providing a more seamless and personalized silversneakers experience.
Last month, we launched our mental enrichment and social connection programs designed specifically for older adults.
Research supports but in addition to physical activities, social connection and improved brain health make seniors healthier and happier our members and clients give us permission to offer more solutions to address the social determinants of health.
Additionally, in 2021, we launched a new data platform architecture, which we expect will enable us to better understand where our members are in their fitness and health journey and offer recommendations for the next best action, whether that be in person or virtual as the year progresses I look forward to updating you on our progress.
We are a market leader with a core business that is strong and growing the tailwind for Medicare advantage and the aging population support strong growth through 2030, we have long term contracts with our health plans and consistently strong renewal rates our members tell us they want more digital in addition to our in person offerings, which we now deliver through our mental enrichment and social connection solution.
Our balance sheet and cash flow, our strong and stable our business model is asset light we delivered on our 2021 strategic plan by building an engagement platform and expanding our digital first offerings, our financial guidance for 2022 calls for growth in revenue adjusted EBITDA and free cash flow. We are incredibly excited for what lies ahead.
2022, I will now turn the call over to Adam.
Thank you Richard now onto the fourth quarter results revenues for the fourth quarter were $126 $8 million, an increase of 26% from the same period in 2020.
Silversneakers revenue was approximately $96 million, a 30% increase compared to last year due to more revenue generating visits as expected revenue from per member per month fees represented 44% of our total silversneakers revenue compared to 58% in the same period last year.
We ended the quarter and the year with $17 9 million health plan members eligible for Silversneakers and.
An increase of 7% over 2020.
Total silversneakers visits were $17 1 million during the fourth quarter of 2021 compared to $10 1 million last year.
With our Q4 average participation increasing this four 2% compared to two 6% last year and simply put we are pleased with continued positive momentum in our visits.
Within the $17 1 million visits approximately 646000, where virtual instructor led visits. Additionally.
Additionally over 72% of these virtual visits where in our Silversneakers wide format, which is led by our own national instructors and a larger interactive format, which we believe is going to be comprised the majority of our virtual fitness visits in 2022.
And now on to Prime.
We generated $24 $1 billion of revenue in Q4, an increase of 12% from last year.
We ended 2021 with 223000 paying prime subscribers compared to 218000 subscribers at the end of 2020.
This subscriber increase coupled with a slightly higher average rate accounted for the majority of the year over year revenue increase.
As expected we had approximately $3 2 million gym visits from prime in Q4 of 2021 compared to $2 5 million in the prior year.
For home health living during Q4, we recognized $6 2 million in revenue.
Our fourth quarter marketing expense was $2 $5 million to drive momentum for our critical fitness season, and as rich as Richard mentioned, while still early in 2022, we're very pleased with our recent visit activity in Silversneakers lives and believe that Q4 marketing contributed to these positive trends.
Okay.
We generated adjusted EBITDA of $34 9 million for Q4 and for the year, we generated $158 1 million of adjusted EBITDA at the higher end of our November guidance.
Regarding our share care equity position, we continue to hold 11 1 million shares of share care common stock, which are valued on our balance sheet using a mark to market methodology.
During Q4 of 2021, we adjusted the fair value of our equity position and share care to its closing stock price as of December 31.
This adjustment resulted in a noncash unrealized loss of approximately $41 million for the fourth quarter and for the entire year resulted in a noncash unrealized gain of approximately $39 million.
Turning to our year end balance sheet and cash flow. We ended the year with cash on hand of $60 million and term loan debt of $381 million with a leverage ratio of 194 times as calculated under our credit agreement.
In October of 2021, we prepaid $5 million of principal amortization, which makes our next required quarterly payment due in March of 2023.
During the fourth quarter, we also repurchased 30000 shares of activity stock under our previously announced share repurchase program.
Now turning to our 2022 guidance.
We highlighted our 2022 guidance in our earnings release and supplemental materials. This afternoon.
Total revenues are anticipated to range between $540 and $580 million.
We expect adjusted EBITDA to range between 161 and $166 million.
Our assumptions for Silversneakers performance during 2022 are as follows.
Total silversneakers revenue is expected to represent approximately 78% of total revenue.
We expect to end 2022 approaching $18 5 million eligible silversneakers members.
Our eligible membership count began 2022 on plan and is expected to increase each month with normal AGM.
Additionally, our guidance includes a planned and meaningful increase in eligible lives in late spring from one of our top clients with their addition of a large group plan.
Approximately 80% of our Silversneakers eligible lives are expected to be under a hybrid type contract in 2022.
For 2022, we forecast Silversneakers total visits to range from $80 million to $90 million, including approximately $5 million virtual visits.
Regarding the shape of the year, we anticipate both revenue and visits will increase sequentially each quarter of 2022 boosted by.
More eligible members.
An increased number of Silversneakers members returning to the gym.
And more members utilizing our expanded digital offerings.
As a result, more silversneakers revenues and visits in total are expected in the back half of 2022 versus the first half.
Switching to our assumptions for prime in 2022.
Total prime fitness revenue is expected to represent 17% of total revenues.
This guidance projects, a flat to modest increase in our average annual subscriber counts.
We expect annual prime visits to range from $13 million to $15 million.
Turning to whole health living total help living revenue is expected to represent approximately 5% of total revenues in 2022.
Total company gross margin as a percent of revenues is projected to be lower in 2022, and 2021 due to more expected silversneakers and prime in person visits.
Regarding the cadence of the year, we anticipate gross margin percent for Q1 of 2022 will be slightly below Q4 of 2021 level and then decrease modestly each quarter for the remainder of the year.
We anticipate ending 2022 with a gross margin percent still above our pre pandemic levels.
Regarding other components of guidance, we anticipate 2022 marketing expense to range between one six and 2% of total revenues.
Our planned allocation of the marketing investment is expected to be heavier in Q1, and Q4 of 2022 to capitalize on our members' returned to the gym. In addition in Q4, we want to support our clients AEP efforts with a marketing.
SG&A is projected to be lower year over year in both dollars and as a percent of revenues due to strong operational control and a re categorization of certain expenses in 2022 from SG&A into cost of sales, which totaled approximately $4 million in 2020.
One.
We project SG&A to range between five nine and six 5% of total revenues for 2022.
2022, adjusted EBITDA dollars are expected to range from $161 million to $166 million.
Adjusted EBITDA is projected to increase sequentially each quarter with over half of the annual adjusted EBITDA coming in the back half of 2022.
This cadence also projects slightly lower total adjusted EBITDA dollars in the first half of 2022 as compared to 2021 first half.
We anticipate free cash flow to increase to a range of $77 million to $87 million, excluding any potential monetization of our position and share care.
And capital expenditures are estimated to range from 15 million to $20 million.
Regarding our debt leverage ratio, we are comfortable operating at this current level and we will continue to evaluate optional paydowns to ensure we are optimizing our capital structure.
Additionally, we continually work with our board of directors to evaluate the best capital allocation options to ensure we can deliver a maximize return for our shareholders, including our $100 million share repurchase authorization.
I will now turn the call back over to the operator to open for Q&A.
If you would like to ask a question. Please press star followed by one on your today. Thank you Pat now if you do change your mind. Please press star followed by two Linda. Thanks Ross. Your question. Please ensure your line is on mute.
Our first question comes from Jason Zhang from Credit Suisse. Your line is now open. Please go ahead.
Thank you and thanks for taking my questions.
A quick clarification on your comments at all on intra quarter trends for Silversneakers in full queue. So do you see visits going sequentially in October and November had been declining in December because of omicron, resulting in sequentially flat and have visits fully the colored in more recent weeks back to like October number levels, just trying to understand that if there is.
Still lingering impact up on the conveyor and are back to pre omicron kind of run rate.
Yes, Thanks, Sheila and good question. So the way in Tommy you can weigh in here as well what I would start off with is that we saw a clear change in silversneakers members behavior when when omicron came on.
So the picture after Thanksgiving going into the December and even into the early January timelines and then you see clear recovery behavior pre omicron, and we see clear recovery behavior.
I would say now post on micron, but theres clearly a a return.
What we're seeing in February and early February is encouraging to get to the ranges that we outlined for the full year, telling you anything you want add haynesville Andrea.
The thing I would add is that we are starting to see sentiment from seniors improving related to getting back to the GM as well as socializing and public. So we're optimistic about the trends in the patterns.
Okay and then.
One more question I had it on the prime fitness expectations clearly I know there are some puts and takes there not much growth expected in 'twenty two I'm just trying to understand with some recent announcements around insurance companies, including fitness programs and solutions in the commercial insurance plans Lake.
United Peloton is one example.
Just trying to understand how do you view the landscape for that business.
The rationale for activity for having that offering in place.
Yeah, I'll start and then maybe Adam if you want to weigh in on that I think the overall market sentiment for a program like Prime is positive to Linda to your point I think employers care deeply about their employee health and as we're getting back into a.
You know it environment, where people are back in person and together.
At work and then also of course at the Jim I think this will be a tailwind for prime in terms of what we see for the whole year.
We're just going off kind of what we saw through the last year's pandemic and what we saw with some.
Some restraint from people engaging in the program due to the restrictions not all of the restrictions have still been lifted yet across the country in different geographies are still having some some challenges in terms of what they require for someone to go to to the gym, but Adam anything you want to yeah.
Julien are you hit on an important point, we also see an increased demand for programs like prime with large employers and we feel like this is gonna be a great solution for them.
The guidance, we have as you know.
It's a slight uptick on the highest side of subscriber count we actually seen acquisitions are going really well, even even drama around the challenges of deliberate than on the termination side and our belief is that that's really driven by what Richard just touched on is that the month of December early January is still a lot of restrictions out there as those abate.
Hopefully we can we can start to see some improvement there but for what we're seeing right. Now. This is why we reflected the guidance you saw today, but feel really good about it and the future of the business.
Okay, and one last one before I E.
Last quarter you guys had noted that you plan to increase marketing spending focus on digital and of course in person visits did that planned spending play out as expected or did you scale back on some spending because of Covid, which card and if some of that spending is an all in 'twenty two outlook and what are the specific channels you guys allocated more dollar debt.
Are those any color there would be helpful. Thank you.
Yeah, Hey, Zelle, Andrew Tom again.
Did increase our investment in marketing in Q4 for a couple of reasons one to support our health plan clients for the annual enrollment process and number two to really start to build momentum going into the January busy season, then and put a lot of emphasis on digital of our silversneakers by virtual.
Offering and that did pan out we're seeing good performance so far in the quarter related to Silversneakers lives and.
2022 does have a step up in total marketing expenses over 2021, and it's the seniors are more comfortable getting back to the gym getting back to their routines. We also have new solutions that we're offering in terms of mental enrichment and and social engagement and then we will reserve for the <unk>.
Half related to AEP and again to rebuild that momentum in the cycle starts all over again.
Alright, thanks, guys. Thanks Yolanda.
Yeah. Thank you.
Our next question comes from Matthew <unk> from Piper Sandler. Your line is now open. Please go ahead.
Hey, Thank you for the question.
Wondering if you could comment on the payer space and demand for supplemental benefits I know Humana recently mentioned the benefits of additional services and margin improvement from using services specifically outside of the health plan. So I'm wondering how you can leverage silversneakers to help these payers achieve their margin goals in an increasingly competitive environment.
Yes, Matthew Thank you great Great question I think overall it's.
It's very bullish probably seen some of the strongest discussions that we've had with our health plan partners in a long time and I think they're all finding value in a lot of the different supplemental benefit providers and their ability to drive engagement with the population through through different needs in Silversneakers is really a great.
Brand to be able to do that not only its 30 year history, but also the difference it makes in the lives of our members, but also its retention and its acquisition.
Support and so what I see is an environment that has a stronger appetite for the inclusion of supplemental benefits in helping members have more choices in the ways that they can gauge and healthier behavior or support in their health care, depending on what type of subtle supplemental benefit youre talking about so we're encouraged with what we're hearing I believe that's up a little.
Benefits will continue to be a draw.
In the marketplace as it continues to show substantial benefit to to the members and then to your point I believe that is a margin opportunity for for plan. So they can engage get their members to engage and help their behavior. There will be a lower cost burden over time, so I won't kind of where you are I think it's a really strong strong environmental factor.
Got it that's helpful and then I know in the past you've referenced the Avalere study on the outcomes that Silversneakers can drive curious how much of an impact that has had on communicating this value proposition to health plans and assuming that that outcome data didn't include a lot of the virtual visits.
Mental and social enrichment deployment is there a potential that that out those outcome data could skew higher as those.
Programs take hold and increasingly.
Raise your value proposition to the payers.
Yeah I appreciate the question and the short answer is yes, you know I think that there's still upside in the.
The different types of engagement that the Silversneakers brand has the ability to elicit historically it has been primarily focused on physical activity and a sense of community, which are very powerful drivers for people to engage in healthier behavior to live longer and to be lower cost in the Avatar study was a great example of a propensity matched study putting like for like people together.
And studying them over time, and then coming back and saying, yes, Silversneakers members, who also have chronic diseases, who also maybe struggled with weight or have other conditions just like the traditional Medicare population does but they do engage in healthier behaviour and then when we look at their cost profile, it's better now that we're driving social and mental enrichment and engagement.
As well I believe that that will also be a tailwind for our benefit in and that are that cost reduction some of our plans you know all of our plans care about this of course and.
And we work in good faith with the plans to you know they have a lot of data and information are other members of course, and so we'll continue to to drive this point home that Silversneakers members can help the overall cost <unk> cost profile overall I think it's been very well received and we will continue to look at that as we get more digital engagement to we will get more people to engage in healthier behavior.
Therefore, the impact should be should be wider than in more disparate.
Got it thank you guys.
Thanks for the question.
As another reminder, if you would like to ask a question. Please press star followed by one no Tonight. Thank you Pat now.
Our next question comes from Ryan Daniels from William Blair. Your line is now open. Please proceed with your question.
Hey, guys mixed peaked out on for Brian . Thanks for taking my questions I guess just to kind of continue on the competition in the M&A space theme.
We've seen a couple of the larger kind of legacy Payors.
A bit of churn as a result of that I'm wondering what kind of.
I'm wondering how those dynamics have been shaking out for you guys, considering your relationships with humana et cetera on that front.
Yes, it's a good question Nik and I'll just tell me to weigh in after I make my comments I think you know.
We.
We work hard every day to make sure that our value proposition for our plants remained strong and we don't we don't rest.
There are good competitors out in the marketplace, we respect them very much and we work really hard to.
Continue to drive home the value for our plans with.
With the with the plans that we have we have fantastic long tenured high 90% renewal rates the long tenured retention and Theres a lot of work that happens in partnership with the plans. It's not just a contract and then you know you have a renewal there is a lot that goes in between that in terms of market activation and co marketing during AEP and working together to try and get members.
Activate and healthier behaves.
Behavior. So I think I think there's a strong demand for supplemental benefits back to the previous question I think we have a gold standard long tenured offering, but we don't rest on that tell me anything you would add in the client space at the moment, Yeah, Hey, Nick in any given year, you're going to see some switching among the various Medicare advantage plans, we have a <unk>.
Relatively high market share and so oftentimes when there is switching its just from one of our one of our other plans, but we are a great acquisition and retention vehicle for the MA plans they value the silversneakers benefit they value the brand and they appreciate our strategic direction. So.
We're pleased about how things shaped up for us this season.
Thanks, I appreciate that color and then I guess.
Next you've mentioned in the past that you've made.
Quite a bit of investments in your in your data platform, which enables you to target a target market folks who may have came off the platform or less silversneakers for a while just wondering what kind of success, you're seeing on that front, bringing folks back to silversneakers. After maybe they dipped off during omicron or something like that.
Yeah, So great question and so Richard So the first thing I'd say is that the digital channel is proving to be a very efficient one getting members, who inordinately, we're not activated or enrolled in the program but eligible.
So the threshold for them to get engaged in the brand has been easier through the digital channel on the investments in our data infrastructure and omni channel deployment. We're doing many use cases now to see different ways to drive people to behavior change right someone who maybe has never gone to the gym, we try them a very different way than someone who went a few times and we haven't seen for a while we talk.
To them differently and so we're using that personalization engine and many use cases in the moment and what we're seeing so far is a lot of learnings and some good results and being able to get people to do.
Something different than what they were doing post our intervention and we do that intervention through mail through phone through SMS through many different.
Different ways, but I'd say that the primary weapon. If you will so far as the proven to be digital and our virtual class offerings that are highly rated.
The people are enjoying them and we're not seeing as much crossover. So we're seeing just a lot of net new to brand, which is fantastic. So we're not seeing some cannibalization of the physical to digital we did see once.
The Delta there and kind of went away pretty omicron, we did see our flex live kind of go back into physical for sure, but our Silversneakers lives kind of our National program. That's continued to be strong.
Great. Thanks, guys.
Okay.
That concludes our Q&A session for today. Thank you for joining you may now disconnect your lines.
Yeah.
Okay.
Okay.
Sure.