Q2 2019 Earnings Call
Today's call is being recorded and will be available for replay beginning today and through August 14, 2019 by dialing eight zero.
5.58367.
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You will be able to find a reconciliation of the measure to the most directly comparable financial measure calculated in accordance with GAAP on 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 995, including statements among others regarding committees health expected quarterly and annual operating and financial performance for 2019 and beyond.
For this purpose any statements made during this call.
That are not statements of historical fact, maybe 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're hereby cautioned that these statements may be affected by the important factors among others set forth Interbody health filings with the security and Exchange Commission and in today's news release.
And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.
The company undertakes no obligation to update publicly any forward looking statements, whether as a result of new information future events or otherwise.
And now I would like to turn the call over to the company's Chief Executive Officer.
If you hadn't come until you may begin sir.
Welcome and thank you to everyone, who has joined the call today I have with me doing the sheer activity helps president and Chief operating officer, and former CEO of Nutrisystem.
Adam Holland, our CFO as well as Tommy Lewis, our Investor Relations and integration initiatives, who will be available. During this during the question and answer session. Following our prepared remarks.
Before we provide an update on our progress.
I want to take this moment to remember trip.
Welcome worker, who passed away last week after battling brain cancer for the last 18 months.
Those of US who worked closely with him new chip, there's a dedicated professionals.
Whose commitment to the success of this company was unwavering.
He will be missed and his contributions will be everlasting.
And we send our warrant thoughts and control she was to his wife drain and their three sons.
I will begin today with an overview of our enterprise level results and then discuss the health care business unit.
John will provide an update on the nutrition business unit, Adam will cover the financials as well as our outlook.
First the loan me a moment to highlight the core strengths of the company.
Our business is clearly aligned with the needs of our health plan customers Silversneakers members and were Polshek makers are directing the future of healthcare, namely to address the social determinants of health.
There are no scores of articles are numerous polshek decisions that have been already acted and rapidly moving health plans and providers to recognize the importance of addressing the underlying issues of health such as lack of transportation food insecurity, lumpiness and in activity or variable.
No wonder addressed earlier and I hope pure cycle can have significant reduction in cost and improvement in quality.
Medicare advantage membership is growing in popularity because its been shown to keep.
Cost lower for patients, while providing members with additional benefits that they value.
It is also being expanded with more innovation to address wellcare and not sick care integrating solutions to address these various opportunities to keep people healthier.
With regard to social determinants of health Medicare advantage beneficiaries are increasingly likely to be affected by social economic and demographic factors stressing the importance of plans, providing non medical benefits targeted for these high cost high need patients.
In early April 2019, she had missed finalized a rule given Medicare advantage plans regulatory flexibility to provide benefits directed at addressing social determinants of health such as buying fresh produce providing food for beneficiaries with cardiovascular conditions.
We believe that typically health will be successful.
In this area.
Because of our experienced and capable leadership team and we are one of the few companies addressing at scale a onto social determinants of package.
Coupled with a stable cohort of nearly 70 health plan customers with relationships that are unmatched in the industry.
Our growth in the business unit.
Is rebounding.
And we are implementing new and creative ideas in the nutrition business unit that will leverage our health and fitness partnership relationships.
Our balance sheet is strong and our robust robust free cash flow is allowing us to pay down our debt ahead of schedule.
Additionally, our cost synergies are on track.
And our revenue synergies are beginning to take shape.
We continue to make progress with both our operational and sales initiatives to leverage both our National Fitness Center network and health plan partners.
As new distribution channels for the nutrition business.
The healthcare business unit is also capitalizing on the synergies from the media expertise nutrisystem and their customer contact center, which we've consolidated during the last quarter.
We believe as evidence by the success of our first quarter media campaign that those last two synergistic benefits of the acquisition will be indispensable to the continued growth in silversneakers eligible lives enrolled members and increased visits.
We're just five months out from the closing of our Nutrisystem acquisition, we are fiercely executing on our plan to leverage the assets of these two businesses to drive significant long term shareholder value.
And with that.
I like to focus on a few key highlights specific to our second quarter results, which include first.
Increased strong momentum and our health care business.
Secondly, early success in revenue synergies and thirdly optimization and expansion of our nutrition business. So the first point.
We are experiencing increased momentum in our health care business and therefore, I am pleased to share with you that we are raising our 2019 revenue guidance for the health care business unit.
Additionally.
And now that are showing season is over.
Our preliminary 2020 projections for revenue growth in the health care business for 2020 are somewhere between the high single to low double digits driven by growth both in Silversneakers and pricing.
Additionally, I'm also pleased to share that we expect our total eligible lives will grow to between 16 and 16.5 million Eligibles.
As well as an additional growth of new Eligibles for prime by over 1 million as a result of a new Medicare supplemental plan and this is all for 2020.
It's important.
To emphasize that the success, we are experiencing today in the health care business was not by chance.
It was by design.
It was a direct result of the careful re engineering and transformation plan that we launched in 2016.
Back then we identified several key issues, causing lag in the health care business.
And then.
We uncovered opportunities to correct those issues and position the business for growth.
As a result.
We're seeing the re acceleration of this business that we knew was possible.
For example.
The reengineering of the sales organization back in 2016 has unquestionably delivered the following year to date results.
First the successful 2019 selling season has generated more than 600000, new lives for silversneakers going into 2020.
These new lives came from both new health plan customers, adding a fitness benefit to their covered benefits as well as from the welcome return of past clients.
These gains in new lives, coupled with the organic growth in Medicare advantage will we believe increase our eligibility of silversneakers lives by nearly 8% and 2020 over 2019.
Second.
Our launch of the intense customer member first mindset.
Mindset back in 2016.
Prompted a change in the organization and as such we have forage stronger relationships.
With three of our core stakeholders, our fitness Center partners, our health plan customers and yes, our silversneakers members.
And the last three years I have personally met with the top leadership of our largest health plan customers Fitness Center partners as well as thousands of our Silversneakers members.
And the process.
We both rebuilt relationships with our core stake holders as well as gained critical business insights that are the basis of our unique strategic position that we now enjoy today addressing the social determinants of health of physical inactivity, social isolation and food insecurity.
Our health plan customers.
And fitness Center partners.
Have validated the social determinants as essential to their continued success and relevance.
In fact.
Two of our new 2019 customer wins in both a combination of silversneakers, along with a nutritional components.
Additionally, Humana has been involved in a year long pilot with activity helped related to the loneliness and social isolation recognizing that Silversneakers also offers benefits from social connections along with its already well known benefits from physical fitness.
We continue to expand on that work and appreciate the partnership Humana has shown in addressing the problems of Lumpiness and social isolation by leveraging the strength of our Silversneakers brand.
In addition to loneliness and social isolation.
We are now working with Humana to address a no other key social determinants upheld food insecurity.
We look forward to sharing more about this in the near future.
Heartening to address food insecurity.
It is a reflection of our ability to adapt nutrisystems robust infrastructure to offer nutritional solutions.
That goes beyond just weight loss.
Thirdly.
Our digital marketing efforts that we started back in 2017 are paying off.
That coupled with our expansion into television a smart move by this company in January has been one of the most significant catalyst driving silversneakers membership and as a double win we believe more Medicare Eligibles are choosing Medicare advantage plans that offer silversneakers as a result of learning about the iconic program through our National television campaign and with a net promoter score of 81. When current members here about silversneakers through television they are more apt to recommend to others to join the program.
I also know from speaking to a number of our health plan executives that the TV campaign was favorably received by them and drove further interest in the Silversneakers brand.
All in all.
We experienced a lift.
In incremental enrollments invitations.
Going forward.
We are excited by the expanded possibilities of media driven in great part by our ability to now tapped into the know how and the experience of Nutrisystem, who has huge television and digital advertising as an indispensible vehicle to how they reach consumers.
Fourth.
The last two years of the healthcare business have seen impressive retention success with customer contract renewals.
And 2018, we renewed 97% of our customer contracts. This year, we are tracking to a 99% renewal rate.
We also secured and early contract renewal with a large national Blue plans.
In fact.
It's a top 10 Medicare advantage plans.
Fifth.
And with respect to United Health.
As a positive update to our February call.
We now anticipate that going into 2020.
About 20% to 25% of the individual lives we have in 2019 will be retained.
And as a reminder.
All of the group like Ics, which represent about 60% of the 2019, United Health business revenue will continue in 2020.
And I'm pleased to share with you that discussions to extend this business beyond 2020, so thus far looks positive more news as it develops.
Six.
Our prime fitness business also had a strong selling season in which we signed two new commercial health plans.
We also won one of the largest non health plan Medicare supplement players.
What are your arrived in late 2015.
We had roughly 136000 prime subscriptions today I'm proud to say that we have more than doubled that bigger to north of 334000 subscriptions and growing.
As you can see.
The healthcare business has fiercely executed on the ABCD strategy that we announced just three years ago and August of 2016.
This executive team has unequivocally delivered addressing the challenges head on and putting the right strategic plan in place to overcome and position the business for future success.
I am proud of the entire team and like to thank them.
And all the colleagues for their tenacious commitment and success and seen our plan through.
Turning to the second key area of enterprise update for today's call.
We have seen very encouraging early success and our revenue synergy opportunities whereby we offer nutrition solutions to our managed care clients.
A major factor in the strategic rationale of combining Tivity health and nutrition, so what's the opportunity to cross leverage our capabilities.
We believe Tivity health is now uniquely position to leverage the food science capabilities of Nutrisystem to expand beyond weight loss and offer broader nutrition based solutions to seniors and to those with specific chronic conditions or food insert and securities through our health plan fitness partner relationships and our proprietary database of members.
During the second quarter, we signed two relatively small but full blown non pilot contracts to provide post discharge meal deliveries for members facing food insecurity.
One of these was a competitive win and the other was a new covered benefit be offered to health plan members.
Incidentally, both customers are also new to Silversneakers.
In making these sales we sold that our nutrition offering can drive increased adoption of Silversneakers and vice versa.
In addition to those two new contracts, we are launching pilot programs with two of our large existing customers.
One.
A self insured employer and the other a health plan to identify and support their diabetic the diabetic members in an effort to provide the health of their members and reduce cost.
What are those new pilots is with Walmart.
Just six months after signing a prime relationship with Walmart. We are now expanding that partnership to include this new pilot with the goal of evaluating a specially designed nutrition program to improve the health of our group of associates with type two diabetes.
And this pilot we will provide Wal Mart associates.
That have diabetes with access to Nutrisystem D, which is designed specifically for those living with pre diabetes and type two diabetes to help manage blood clue blood glucose levels and achieve and maintain a healthy weight.
And the second pilot.
We will work with humana through their bold goal initiatives and provide a combination of education meal delivery and other resources to address food insecurity, and a diabetic cohort, which extends beyond the 65 and above age group.
And now for the third area of focus.
For our call today, the nutrition business unit.
As we all know.
This inter she plays in a very competitive direct to consumer market that is constantly experiencing a need for new and innovative ideas and programs that has served this business unit successfully in the past.
To respond to the current environment.
We are applying a two pronged strategy.
To further optimize the core business and secondly, expand the business to include new channels beyond direct to consumers by expanding reach beyond direct to consumers and working with our health plan partners and fitness partner locations.
Additionally, we will leverage the food service capabilities beyond weight loss. So that we can address the broader opportunity of nutrition based solutions and continue to differentiate ourselves in the marketplace.
Going forward just like we did with the health business unit around the ABCD I'll refer to this approach in shorthand as the OE strategy focusing on optimizing the core with a focus if you will.
Expanding into additional strategic areas and channels.
We are applying a strategic approach that is very similar to what we did in the health care business unit and we have high confidence that we can execute a nother successful transformation.
As part of this plan.
And the next.
Two quarters, we will make additional investments of approximately $3 million into channel expansion.
Marketing technology product innovation and operational capabilities as well as to the menu and brandy all of which is comfortably contemplated in our revised guidance issued earlier today.
An integrated approach to these investments will we believe strength.
Member loyalty and fitness center partnerships will provide revenue streams that are not totally predicated.
On a direct TV channel.
And now I'll turn this call over to Don to provide more details around the nutrition business unit Don.
Thank you Fernando.
I'd like to start off by attracting the Nutrisystem business results for the first half of the year.
On our first quarter call in May we share that January and February program starts were down significantly we worked hard made several changes and we're pleased with our results in March when program starts rebounded coming in stronger than January and up double digits in the prior year at a comparable return on investment.
April start came the comparable to February on lower spend which was also encouraging the lagged a bit behind prior year, which was attributed to Easter timing.
Based on all indicators, we believe that for the remainder of the year, we will be able to exceed prior year, new starts and forecasted as such.
However, while we continue to rebuild momentum and show month over month improvements as we progress through the second quarter, we fell short of being able to deliver the projected year over year growth with our current product at an acceptable ROI.
Based on this we have now revised our forecast down for the rest of the year.
No they're not meeting our topline expectations. It's important to note that the nutrition business unit continues to generate meaningful EBITDA and free cash flow.
2019 has been a tough year and we have assessed and are addressing head on all the variance that impact our direct to consumer nutrition business, including new competitive entrants.
Product innovation.
Offer channel expansion and optimization.
While we have had major success on our digital expansion initiatives and have improved revenue per new customer expanded gross margins and reactivated more former customers than prior year, we fell short on the innovation front as our program fail to resonate as strongly as we expected and needed to in the current competitive environment.
As you heard Donato mentioned, we're investing in several key areas that we believe will fuel a successful 2020 diet season, we are reinstating. The handbook that we used from 2013 to 2017, where we drove for successful years of innovation that delivered double digit revenue growth and are in the process of implementing a major program redesign for Nutrisystem set to launch this upcoming diet season.
The dynamics of the marketplace have changed and we've conducted extensive research received significant consumer input and are implementing live testing and fully expect to reclaim our leadership position within the industry on the innovation front.
We know the simplicity and ease of our Nutrisystem program drives the results as demonstrated by the millions of people men and women of all ages that have tried nutrisystem and have had success.
We have decades of experience and believe our science backed and clinically substantiated results distinguish us from those who are newer to the market and just don't have those assets. In addition to product innovation. We're also investing in our AD Tech in March Tech solutions and are conducting channel expansion tests beyond television and digital which I will touch upon in a minute.
We believe we have a strong plan in place for getting the business back on track and ready for the 2020 diet season.
One of the many benefits of being part of a larger organization is the collective talent and resources that we now have in place to help address all aspects of our program as well as to develop new channels to augment our direct to consumer efforts.
As outlined earlier, we're implementing our OE strategy, where we are also optimizing the core business and support the 2020 diet season and return in the core business to growth and E. Expanding the business to launch new revenue channels that will diversify us from being singularly dependent on the direct response advertising based approach. It's our belief that the execution of this strategy will lead to stabilization growth and reduced volatility for the nutrition segment.
To add some color around the Oh, our optimization component of our strategy I'd like to elaborate on four key initiatives that we are focusing on and investing in to drive 2020 performance.
The first is innovation.
As I just spoke to we will be introducing an all new program for Nutrisystem, along with some major innovations around the South beach diet as well.
We believe that our focus on merian consumer behavior, and evidenced based solutions will allow us to lead the industry and offering new and breakthrough solutions to the consumer.
As you know we don't disclose specifics at this time of year due to the competitive nature of our business, but we do look forward to sharing more on future calls.
To digital acceleration and media mix.
Digital spend was up approximately 60% in the second quarter versus prior year, and we expect to double year over year digital spend per nutrisystem in the third quarter. Our digital efforts have had an acceptable ROI that is allowing us to target new audiences that we do not reach through traditional television media, we see a lot of opportunity for continued growth here as we head into 2020.
This is RV resulted in our being able to radically shift our media mix towards digital reducing our dependency on television.
Today more than 50% of our orders are coming to us through the web that's not to say that TV won't remain an important part of our go forward strategy because of the scale and broad reach it provides it will.
As shared on prior calls we have data that leads us to believe that we cut back too much on television in the first quarter, especially as other competitors jumped into the space.
Additionally, and as part of our diversification efforts, we're testing a brand new marketing channel in the fall outside of the television and digital channels, which we believe has promise we'll share more when we update you on our diet season plan.
Three agency selection and creative.
We are newly collaborating with two known and well respected agencies to develop our 2020 diet season creative campaigns for the Nutrisystem and South Beach Diet brand.
We'll be producing a large amount of television and digital video assets that we can use across our platforms.
We will be expanding our social media and content strategy as we build off the wins from this year's Influencer and content campaigns, and we will continue to drive engagement through our newly in South Beach apps, which close to 80% of our customers are actively using.
And for technology data, enabling technology for investing in AD Tech and Martech capabilities and the talent needed to support that having just launched our demand side and data management platforms, which allow us to do enhanced targeting and segmentation. We've also Greenland funding for our customer data platform targeted to be ready in Q1, 2020, which will control refine and optimize the customer journey.
These investments in cutting edge technology will further expand extend our long acknowledged analytic capability and we believe will lead progress ahead of the competition.
We will also be leveraging this technology within our healthcare business unit.
Now some color on the E or expansion part of our strategy, which we have telegraphed since day one of announcing the combination of these two companies focusing on two key components and underscoring wide activity health Nutrisystem combination makes so much sense first as Donato mentioned earlier by capitalizing on our food science capabilities, we plan to differentiate ourselves from our competitors by focusing not just on weight loss, but expanding into broader nutritional segments and providing much needed food food solutions for those with food and security issues or chronic conditions health is the new wells and we embraced the notion that food is medicine.
And two we are the only company in the weight loss space that its customer relationships with 70 health plan multiple employers and 16000, plus fitness Center partners no one else even come close to the new scale and reach that we have as a result of activity acquiring nutrisystem. We believe that these new and significant points of distribution will deliver predictable revenue streams and reduce overall dependency on advertising and promotion spend to drive growth as a matter of fact, we believe that over the next two years as we diversify and expand a meaningful percentage of the total nutrition business unit revenue will come from these sorts of partnership and we're excited about the pilots and Rollouts already underway.
To close my commentary, while we're nowhere near satisfied with the financial results of the nutrition business. So far in 2019, we are excited about our growth prospects as we look forward. We believe that the combination of science backed food capability marketing expertise healthcare expertise and unparalleled reach set us apart from the rest and we are confident that our OE strategy will enable us to take full advantage of our unique competitive position.
With that I'll turn the call over to Adam who will review the financials.
Thank you Don and good afternoon to everyone similar to last quarter, we provided supplemental financial information on the Investor Relations page of our website that we hope will aid you in understanding our Q2 results and updated 2016 guidance.
Further please note today's press release includes non-GAAP reconciliation tables.
With related explanations.
Turning now to our second quarter combined results.
Total revenue for the second quarter of 2009 feed was $340.4 million, an increase of 124% over the same period last year.
Net income was $18.1 billion compared to income from continuing operations of $22.7 million in the second quarter of last year.
Adjusted net income in Q2, 2019 was $31.2 billion compared to 22.8 billion in Q2 last year.
Adjusted net income for the second quarter excludes certain pre tax and post tax items incurred in connection with the acquisition of Nutrisystem.
Q2, GAAP earnings per diluted share was 37 cents.
With adjusted earnings per diluted share of 64 cents.
Adjusted EBITDA for the second quarter of 2019.
Was $70.3 million and this amount includes the benefit of approximately $1.3 million of realized cost synergies during Q2.
Moving on to healthcare, our healthcare segment continues to perform well the segment generated second quarter revenues of $157.5 million, an increase of 3.7% over the same period in 2018.
Silversneakers revenue represented 78% of segment revenues or $122.9 million slightly higher than Silversneakers revenue in Q2 of 2018.
It's important to note that this higher revenue came despite having 700000 fewer eligible members this year.
As an auto stated we are very pleased with this outcome and believe it validates the revenue potential of the ABCD strategy.
Total silversneakers visits for Q2 of 2019 or 25.6 million relatively flat compared to last year.
Although those visits more generated revenue this year versus last year.
We ended the quarter with 14.9 million eligible Silversneakers members with act with approximately $3.5 million enrolled.
And an 8% active monthly participation rate during Q2.
Prime fitness accounted for 19% of total revenue or $29.8 million for the quarter, an increase of 18% over the same period last year.
Prime's growth over Q2 of 2018 was primarily driven by 15% net increase in subscribers ending the quarter with over 334000.
Our healthcare segment non-GAAP adjusted EBITDA for the second quarter totaled $45.7 million or 22.7% of segment revenues. This compares to $35.1 billion or 23.1% of segment revenues for Q2 of last year.
Note. This amount includes approximately $300000 in benefits from cost synergies.
There were many there were three primary factors influencing Q2 health care EBITDA first our year over year cost per visit has increased as described on last quarter's call. This put pressure on EBITDA.
That said, we experienced some cost relief because the percentage of Q2 2019 visits from PMPM members was approximately 23.6% or 70 basis points less than Q1 of 2019.
The sequential reduction of PMPM visits was beneficial to our Q2 EBITDA compared to Q1, because we experienced fewer non revenue generating visits.
Second.
Our home health living business experienced a higher than expected acupuncture utilization rate.
Putting pressure on Q2 EBITDA as we operate this business primarily under a capitated arrangement.
These two decreases to adjusted EBITDA margins were slightly offset by a year over year reduction in our Q2 2019 total marketing expense, which was $3.9 million in Q2 of my team.
Importantly, even with our planned lower marketing investment for the back half of the year. We expect continued strong performance in both Silversneakers visits and prime subscriptions for the remainder of 2019.
Turning now to the nutrition segment, the second quarter revenues for the nutrition segment came in at 180.
Within DTC Q2 revenues from customers in their initial diet cycle were down 11% year over year, primarily due to fewer new customer starts.
Based on the trends, we have seen in our second quarter in July .
We have projected that the total 2019, new customer program starts will be down single digits versus prior year.
Q2, 2019, reactivation revenue, which made up approximately 37% of our total DTC revenue was up 8% year over year, helping offset some of the decline in new customer revenue.
Based on these trends, we expect reactivation program starts and revenue to be up compared to last year.
We continue to see positive momentum and growing both our up sell and our cart items and we're also benefiting from gains in customer length of stay on the program.
Rounding out Q2 revenue for the nutrition segment QVC contributed $3.5 million in revenue and revenue from the retail channel was $8.7 million.
While the retail channel met our revenue expectations for Q2, we now anticipate a reduction in year over year revenue for the remainder of the year due to reduced orders from some of our retail customers.
Nutrition segment gross margin as a percentage of revenue showed improvement compared to last year, but balancing promotional offers and optimizing supply chain costs, although marketing expense increased to $50.6 million in Q2 or 27.7% of segment revenues.
In the second quarter.
As a result, our Q2 adjusted EBITDA for the nutrition segment was $34.7 million or 19% of segment revenues.
And this amount includes approximately $1 million in benefits from cost synergies, turning now to our balance sheet.
In conjunction with the closing of the acquisition of Nutrisystem will March eight we entered into a credit agreement that provided tivity at senior secured term loan a and term loan b facility totaling $1.18 billion.
As well as a $125 million revolving facility.
I'm pleased to report that as of today's call, we have repaid $90 million of that initial amounts borrowed under the term loan facilities.
Because we are over a year ahead of our mandatory amortization schedule, we do not expect to pay down material amounts through the remainder of 2019.
We expect to meet our objectives of achieving a leverage ratio of less than three and a half times by the end of 2020.
In May of 2019, we entered into an interest rate swap agreements to manage our exposure to fluctuations in interest rates.
As of June Thirtyth 2019, these interest rate swap agreements had current notional amount totaling $900 million.
Turning to our outlook for 2019.
As noted in today's press release, we updated our February 2019 consolidated guidance in conjunction with updates to the outlook for our healthcare and nutrition segments.
The healthcare segment revenue guidance has been raised to a range of 625 million to $630 million driven by expected continued momentum in our Silversneakers business, where we now expect a slight year over year growth rate and stronger back half growth and prime as we layer in walmarts new business.
We are narrowing our standalone adjusted EBITDA range to 140 million to $143 million as we expect our PMPM mix as well as a higher than anticipated claims utilization rate from our home health living network mentioned earlier to continue to pose a challenge through the remainder of 2019.
The nutrition segment revenue guidance, which includes projected results from March eight 2019 through December 30, Onest of 2019.
Has been lowered to $502 million to $512 million.
Driven by an anticipated reduction in DTC revenue from fewer program starts and lower retail revenue.
Adjusted EBITDA for the March Eightth through December 30, Onest period has been lowered to a range of 80 million to $84 million, reflecting the lowered revenue range and new investments to prepare for a successful 2020 diet season.
These combined segment adjustments resulted in the following consolidated guidance first as a reminder, the consolidated guidance reflects the nutrition segments results starting on March Eightth and is not reflective of the full first quarter of 2019.
We anticipate total revenue in the range of approximately $1.127 billion to 1.142 billion.
non-GAAP adjusted EBITDA of approximately $229 million to $239 million.
Which includes our commitment to deliver cost synergy savings of $9 million to $12 million in 2019.
This would equate to adjusted earnings per diluted share in the range of $2.14 to $2.32. Our guidance contemplates depreciation expense of $17 million interest expense, including noncash interest between $77 million to $79 million a tax rate of approximately 29% for quarters three in quarter, four and weighted average diluted shares of approximately $47 million for the full year.
Free cash flow, including cash paid for interest is expected to be approximately 55 million to $60 million, reflecting capital expenditures of approximately $22 million to $24 million.
I will now turn the call back over to Donato.
Thank you, Adam and Dawn and thank all of you for joining us to discuss our second quarter.
In closing, let me summarize and leave you with these important points first.
Healthcare business unit is exceeding our expectations and we expect to enter into 2020 with high single digit to low double digit revenue growth returning us back to where we were in previous years.
Second.
Our solid free cash flow supports our ability to continue to pay down debt aggressively on top of the 90 million we have already paid.
One year ahead of schedule.
Third.
Just five months after the closing of Nutrisystem.
Our revenue and cost synergy initiatives are on track according to plan.
And further momentum will occur as the year Unwinds.
Fourth.
The nutrition Division is a business unit that has had many years of success and while it may have miss the innovations spark this year.
The program works.
The market is growing.
And it now benefits from the collective talent in this organization.
The increase of new investments of approximately $3 million.
Coupled with unparalleled access to the health plans and fitness and member networks will we believe afford that business with a successful diet season in 2020.
Lastly.
And as we noted in our press release today.
We are pleased to welcome to the board a new member Dan totally from L. tourist capital partners, a well respected long term oriented investment firm that focuses on the health care industry.
Alturas is a significant tivity health shareholder who recognizes the value creation opportunity of our strategy and we look forward to dans contributions to the board as we continue to execute on our plans and now before I turn it to the queue in a I'd like to close by once again, thank all of our colleagues for their heroic efforts during our integration.
And the results that have come out of that integration thus far.
Without them.
Quite honestly, our innovation and successes would not be possible operator, I'd like to now open the call for questions. Please.
At this time I would like to remind everyone in order to ask a question press star is the number one on your telephone keypad, we'll pause for just a moment to compile the Q and a roster in order to allow time for everyone to ask a question today. Please limit yourself to one question and one follow up.
Your first question comes from Steve Halper with Cantor Fitzgerald. Your line is open.
Hi, Thanks, Yeah, hi, thanks for the.
Commentary and all the updates around the business. So I just wanted to ask about the comment that you made with about Humana and you're working with them on food insecurity and there's more to come so from your knowledge right did did you man.
Create.
2020, and made plans with.
Some sort of nutritional benefit.
In there.
It's sort of a deal with a place holder and perhaps.
Thats the part that too.
Tom So if you could just expand on what you think humana is doing around that component would be really helpful.
Yes, Great question, Steve as I stated earlier listen.
The Medicare advantage plans now and what CMS past not only this year in the years previous it's giving these plans regulatory flexibility and you've got to take your head off to Humana, you know with the bold goal initiative that they undertook a number of years ago. They are clearly ahead of the pack and yes to your question. They envision and these pilots certainly we'll unveil the what I call true outcomes of lowering cost and improving if you will overall, what they're calling healthy days humana looks at healthy days with these membership we know that if you're 65 and older you're living in Rural America, and you've identified yourself as being food and secure the number of unhealthy days per month is about 26. So these are the areas that we will begin to measure and quite honestly, we are not in the pilot business.
We're in the revenue business and the pilots we have to prove and demonstrate their success and that will lead to what I truly believe contractual relationships with these plans.
And do you think thats more of a 2021 plan year.
Well I'll tell you one thing ill.
Im 63, I don't have a long time to wait for the stuff. We will move very quickly and those are the updates that we will provide to you I can tell you we have a great relationship with Humana.
Humana wants to see US succeed today have a great respect for the Silversneakers brand and it's in our hands to move fast quick and demonstrate value and stay tuned.
Great. Thank you.
Your next question comes from Alex Fuhrman with Craig Hallum. Your line is open.
Great. Thanks, very much for taking my question I wanted to ask about the strong selling season for the Silversneakers business that certainly encouraging to hear.
That you're projecting high single digit to low double digit growth I guess as we as we head closer to 2020, what are some of the variables that are going to impact whether you come out at the high end of that or the low end of that is is it primarily roll mint in the plans that you're partnered with is it visits to the gym in your PMPM or or or hybrid market.
Just curious what could cause results to be on the higher or lower end of that range.
Well I have a saying in the company and I'll use it on this line.
Be like a carpenter measure three times and cut ones.
And so listen we don't have the eligibility files, we don't get those files until January however.
I do believe based on the information we've given you a lot of information today that we normally have not provided this early the fact that we have the news on United The fact that we have now.
Regained new clients. The fact that we have retained the current clients. All this really gives me.
Confidence that we can inch towards that higher range. However.
I would be absolutely foolish, if I didn't say I need to wait until the eligibility files come in and we will get those obviously in January and you're you're reading. The same reports that we're reading many of the customers that we're doing business with are having good growth this year.
And that is another kind of feather in our cap.
But at this point.
I think that.
We clearly see the line of sight towards that higher end.
Okay. Great. Thanks, that's really helpful. And then just turning gears to the nutrition business I mean, it looks like the forecast for the back half of the year is lower than the first half of the year.
Can you give us a sense of is that because of the some perhaps lower customer starts that you are seeing now I think you also mentioned lower orders that at retail.
Is that having an impact as well.
Yes, Hey, this is Adam you're right the back half that follow the typical cadence I'd say, what you've seen in the last few years in terms of the revenue distribution throughout the year and does reflect what we said in the prepared comments regarding new customer starts.
Okay Thats helpful. Thank you.
Your next question comes from Ryan Daniels with William Blair. Your line is open.
Hey, guys. This is Nick speak out in for Ryan Thanks for taking my questions.
Hi, Good art there has been a.
Sorry was that.
No I just had a low to you.
Oh, Hey altogether.
So just to start off there has been a couple of studies and the cost savings for broader use of meal delivery and just wondering if you think couple of things. So there is a bipartisan policy center, sorry that just came out recently on that side.
Hi, Mike.
Every dollar you spend you save $1.57 on me also just wondering if you think.
The studies like that could motivate traditional fee for service Medicare to offer.
Well delivery and I guess, how confident you are.
So you could see them doing that in the future.
Well, it's a brilliant question and quite honestly, it's not just with food.
Why not whats Silversneakers, you know as well.
And so you know we continue to see that as an opportunity. We do have a government staff that is working on that and by the way.
They are not just looking at that hard core dollar what theyre looking at I gave you the information about the number of healthy days for every.
Unhealthy date that a senior experiences it's costing the health plan $16 in extra costs. So there are a variety of measures that we are looking at but your question is it's a great. One it's not just tivity thats moving that forward, which CMS I do know that many of the.
Health plans have also turned it up the idea you know why not make this available across all membership so listen.
It takes a long time to get these.
Policies.
Through Washington, but.
Right now we're very encouraged by the.
Awareness of the social determinants of health antibody has just by coincidence.
We've landed on a great sweet spot not just with the physical in activity, but loneliness, a good portion of our members right now.
Our going to the fitness centers not to bench press 150 pounds going because they're lonely and hats off to the health plans, who are saying, we will count that as a gym visit.
Great. Thanks, and I guess to follow up I know you guys mentioned.
Two potential contracts for the post discharge meals I am just wondering kind of how your conversations have been going with the medical care advantage plans on.
And I guess, just further meal delivery for problem.
Problem lies like for instance, those with diabetes and things like that autologous.
Discussions are going so far.
They've been going very well and very encouraging but as my great philosopher Yogi Berra. Once said you don't want to make the wrong mistake I'm very very happy that we signed these two they're not pilots, but it gives the two business units and opportunity to flush out we will learn from these two.
It doesn't mean that we're not going to sign more you know that's just not my style, but what a great opportunity.
Three and a half months after we closed the deal with Nutrisystem that we actually signed these contracts and so Don.
With her two presidents will work very closely to understand what's that offering has to be.
What is the pricing the packaging all the other stuff that will allow us to scale. This remember.
We have incredible relationships with these 70 health plans and I don't think what people are understanding is that the media. The fact that were out there now advertising silversneakers. The members Trust Silversneakers with a net promoter score of 81. They trust US I wanted to share with you a story I think I shared this with you a number of months ago that there was a gentleman that I had actually met 88 years old who came up to me and said I've been using nutrisystem for the last two years. He said my wife has never been a great Cook and she will never be a good cook and Nutrisystem brings food to the home while his wife fell down about three weeks ago and broker her hip his daughter wrote to me and said thank you for Nutrisystem.
It is what's keeping my father alive and this is the type of opportunities we see with the health plans not just with their members, but the members that can pay for this program.
Yes, good morning, saying the interesting story.
Thanks for the thanks for the color to know and I. Appreciate you taking my question.
Your next question comes from David Macdonald of Suntrust. Please go ahead. Your line is open.
Hi, good afternoon, everyone.
Good that'll just a quick question just to come back to the bundled sales I'm curious this selling season, when you're going to some of your.
M- planned partners are you offering both whom contract a if you want to sign up to just Silversneakers and also offering a potential bundled sale that would include.
Senior fitness nutrition.
Social isolation et cetera, how should we think about that if not this selling season on a go forward basis, and then I just had one follow up.
Yes, David how Youre doing actually a great question. So I don't think listen you go to one plan you've seen one plan.
I think it varies.
First of all some of the wins that we had while the health plans may not have tapped into nutrition I could tell you unequivocally one of the big wins that we had back which represents more than 50% of the lives that we now have.
There.
Well basically shut Jimmy your company is different than any other company. That's out there while we may not do nutrition right now because we're now offering the Silversneakers program. What we liked about what you have right. Now is this garden variety of services. So when the sales person goes in there they do assess and evaluate first what the need to.
The chronic care areas and so like I said, one size does not fit all it's really looking at and that's the benefit of having 25 years of experience with the health sector that we have and dawn was correct in her comments. There is no other nutrition business unit out there that has those kinds of relationships and so I am very optimistic that our future.
We'll look at the nutrition division as a usual seller of those goods the health Division will sell it and they will buy it from you know the nutrition business unit.
And then you mentioned.
Hi.
Growing percentage of.
Nutrition revenue coming from non traditional side revenues on a go forward basis can you talk about the marketing benefit of something Thats more senior focused silver nutrition. So to speak and then just final question on.
In terms of the change EBITDA guidance on the nutrition side, how much of that relative to last.
The prior guidance is incremental investment spend as opposed to the lower revenue numbers.
Perfect I'll, let Don take the first of them will switch over to Adam on the second and May want to go backwards. David head is Adam I can answer quickly in this so this is in the supplemental materials as well then.
Currently $3 million.
Of investment that's embedded in that lower EBITDA guidance for the nutrition segment.
Okay.
Hi, let me talk a little bit about our ability to address the senior market first off we know that.
One of the most relevant topics out there is the issue with food insecurity and the health plans are obviously embracing it as as are we and one of the things that Nutrisystem has is a whole team of.
Food food scientists and people that create different program on back at our back at our offices in Fort Washington, and wildly been widely known as the weight loss company.
You can see how quickly we were able to bring in the South beach diet to market and you can envision how we can also design programs around.
Eric the food insecurity, our chronic conditions, if you will and we believe that will be a.
Driver of growth for us as we as we go forward in addition.
Again, it's about having the weight loss programs, but but going beyond that and then also using new channels, such as new channels to get to the nutrition division to legacy Nutrisystem too.
We should reach into the health plans reach into the fitness fitness providers to bring in new new direct at new customers through those channels that again can derive healthy revenues and growth that are not dependent on our current advertising and marketing strategy. So from our perspective the distribution that we are getting from this calm combined that combined combination of the two companies as well as the food science ability to be able to reimagine ourselves from a weight loss company into a broader nutrition solution is on what both to not what I was referring to when we talk about the exciting growth prospects ahead for the Nutrition Division. In addition to the growth that we expect to have in our core business.
Thank you very much.
Your next question comes from the line of Mike Petusky of Barrington Research. Please go ahead. Your line is open.
Thanks, Hi, guys.
Adam.
Can you give me roughly if you guys do 625 in health care, I mean, what will United represent roughly in terms of percentage.
In 2020.
Yes.
Best way to think about it is in 2019, we've got about $60 million of revenue with United.
$40 million of that relates to the group business.
And the remainder relates to individual.
Okay, so that number.
Down a little bit a little bit.
Yes, you've seen this goes back to Donato as point, you may have a little growth.
Through the open enrollment season being up they add a new group contracts for next year.
And you will have a reduction in the individual lives.
Based on what we said in prepared remarks.
The the good the good news there is that we had previously not expected to retain any individual lives for 2020 and now that does not look to be like that in the case.
All right Great and then a question on on the.
Side.
Yes, I can hear it if this were called out to South Beach show any growth either in the second quarter or for the first half.
South Beach is not showing growth for the first half of the year, but again a lot of that is because we refined our media strategy on that front and our repositioning it towards more focused on digital and less on TV as we look to distance the two brands from one another.
Okay.
All right and and then Donato I guess on on.
Television, which you know you credit.
That's helpful.
What what what changes going forward is it more is it is it for longer periods of time, what what's what changes.
Think about it.
Television advertising.
Increasing awareness.
Yes, let me hand, it off to dawn.
Okay, great. Thank you found it very timely that you asked that question because we actually have a.
Cross the cross business each business unit team in town. This week to actually discuss the strategies as we get ready for for 2020 with our with our television advertising I think what you'll see is a little bit more of a niche focused on certain markets as we go forward and that.
Again, probably most most don in the Q1 investment area, but we're kind of refine our strategies strategy as we go forward, but again given the success that we had from the initial testing were very confident that this will be a nice driver too.
Right not only revenue growth in terms of getting more enrollees, but also an engaging people to have more business to the gym. So.
Again it was it was an all out success and we'll refine that as we go forward to make it even more powerful.
Great. Let me sneak one last one in for Adam So.
Looking at $55 million to $60 million of free cash generation.
As an independent company Committee was thrown off a 100 million a year for last couple of years and free cash.
How quickly can you get back to 100 million of free cash generation or better.
As you look out.
Going forward. Thanks.
Yes, and in mind, you any of it.
$100 million had a very low interest interest burden and that was an illustrative you know both companies without the burden of the debt.
We certainly think where there is opportunities in terms of optimizing the working capital cash flow I mean, you'll note that we were able to pay down as much as we work through a combination of.
Better cash on hand at the start of the year.
Our Chief Accounting Officer, Ryan Wagers did an excellent job streamlining the cash flow mechanics within the combined company, which allowed us to accelerate some of our collections and pay down of debt and so we're laser focused on that as you can see it's on the finance.
If you were walking down the hallway. It's the list. The top thing we think about is how do we improve free cash flow grow it as efficiently along with earnings and then utilize that pay down the debt and then in terms of interest that cost down.
I mean can you get back there in three years is that.
Well I don't want to get long range forecast speculation, but.
I'm optimistic and again you have to.
Apples apples to apples with with what the 55 to 60 represents which is after the after the payment of interest.
As the company rose.
We think there's there's up.
Things in levers, we can pull to help optimize free cash flow.
Hi, Thanks, Thanks, guys for all the answers thank you.
Thank you.
Your next question comes from Mohan Naidu of Oppenheimer. Please go ahead. Your line is open.
Although one thank you.
Hi.
Thanks for taking my question.
Thank you.
Clarification on the you might do help.
Individual lives, but 20% to 25% is that going to be just a transitional lives 2020 or is that an opportunity for you to hold onto that subset.
You know I don't know on one of the things that you know I think has been our greatest.
Sense of.
The expansion of relationships with all of our health plan.
He has been the investments quite frankly, we've made into this business.
And quite frankly, they've been sequential because we want to make sure that we're making the right investments, but the digital the fact that we're addressing loneliness. The media I have to tell you that.
You know my regret is I wish we would have done in a few years ago actually I wish we could have done it eight years ago.
But the fact of the matter is when you look at those investments and then you look at the net promoter score of 81.
Quite frankly, we're waking up members, we're waking up individuals who have the program and Didnt know it and they talk to their friends and their friends say, it's one of the best programs out there and so what we have to do and we've been playing this out in a very careful script is execute is do the things that we say we are going to do to drive greater member value and I think thats, where we will win on you know getting customers back.
Look many of the customers that you're seeing quite frankly in that 600000 lives our customers who left us before.
And have come back and so I I will bet.
And we'll you know.
[noise] commit to old you that we will continue to fiercely execute and allow our investments to carry the tall water. If you will.
Thanks for that color, maybe one more on.
The Humana a bold goal in Q2.
This.
Combination program would be a real going into Q2 or is this a separate program and the second one on that is.
There are other fewer I guess other larger plans that seem to have some form of nutrition pilots and you know how are your conversations with them go ahead.
The two and I guess, maybe I have to clear up the muddy water and I'm, probably the one who's not particularly incorrectly.
We have something that nobody else has.
And I want to remind everyone its called Silversneakers.
It's called we have to members.
And we have the members that trust when we call them.
And.
That's what the plans are saying to us.
You have the members you have the relationships.
They may have gone off and partnered with other nutritional companies.
Quite frankly, because we didn't have that offering.
But what we have to show is how we can drive value in the nutritional.
Segment in terms of how we're modifying and developing elder care and senior care programs. However, make no mistake about it.
The leveraging opportunity we have.
Is with the net promoter score of 81, and the Great brand equity, we have with those members and the ability to get things from those members and quite frankly, others cannot this is not just a fly in and you don't drop nutrition.
In their homes. This is about managing the guest stall managing the totality of that member when it comes to physical inactivity, social isolation, and then knowing that they have nutritional needs. That's what we're going to win on and I think thats why you're seeing already.
No non pilot contracts getting signed.
Thanks in auto that's it for me.
Your next question comes from David Styblo of Jefferies. Please go ahead. Your line is open.
Hi, good afternoon. Thanks for the question.
I cannot tell you taught out in the health care.
Two points of growth headwind from from United Peeling off to some extent.
Then plus whatever new customer wins plus.
Perhaps increase participation is or something along those lines that you can provide us to give us a little more sense of the key components. That's.
Adding up to the high single digit low double digit outlook.
Well I think we've done that when I have given you between 16 and $16.5 million of Eligibles into next year. So I think you know the way you just articulated it David I think is right on you will take off what youre, losing on the left pocket our whole concept left pocket to right pocket and then obviously the new lives that are in the right pocket and the growth with Medicare. So I think you're you're kind of.
And to add on that the other thing David as Adam is that also that high single to double. It also includes prime metal don't want that to be loss with new business coming into that segment thats going to be a key component of the driver as well and remember we.
I am surprised nobody has.
Asked his question we are adding.
You know a significant.
Medicare Schupp non plan.
Customer.
They don't want their name mentioned right now and we normally don't mention names anyway, but to Adams point. It is a combination but you're right.
Moving the needle in the total eligibles.
To 16% to 16 and a half remember we had a decline this year. So now we're back to real growth.
Right right, yes, but what kind of a follow up was that with the prime that million lives is that prime members that you're adding did I hear correctly or was that for eligibles that you're adding.
Yes, these would be would be eligibles.
Got you know this is a very interesting program that.
We are now offering.
Understanding what.
You know what the competitive spaces like and what our customers want so it is a prime.
What I call more optimized program and you're correct. It's about a million 0.2 of eligible so obviously they have to sell into them.
Sure just like Okay, just like it's just like we do with all the other prime customers.
Right.
Alright, and then just on the nutrition side for Don.
Obviously growth was really strong for a period of years up through 17.
18, you guys faced some challenges and 19 face some challenges and seemingly got worse I'm wondering if you can kind of walk us through.
The challenges that you are experiencing and the competitive environment innovation.
Maybe response time, what what might could if you could compare and contrast, what those look like in 18 versus those that you're facing and 19 and sort of maybe any color that you could anticipate for for an outlook for next year. I know you guys, what when and provided a revenue outlook on on the healthcare side curious are you expecting that business.
To hold stable next year or continued pressure as you recalibrate that business.
Hi, Thanks, Thanks to the question I'll start and go backwards. So.
Where.
Where I'm not giving any projections at this point on the nutrition to division going forward, but again as my prepared remarks indicated we have a lot of things moving in the right direction.
Most notably the AD digital work that we're doing in our ability to expand reach as well as the.
Technology components that we're putting in place, which will allow us to.
Dr. very efficient revenue opportunities. So I am excited about a lot of things that were doing over the next couple of months as we get ready for.
For diet season, I think again, you know the focus of of what I spoke about was our need to continue to innovate and yes.
As we prepare for 2020 looking to become more aligned with the work. We did in 2014 through 2017, where we introduce something that was truly new on Nutrisystem and actually launched South beach from scratch.
I would say and I, we talked about this in the past going from 2017 to 18 and the two year, they're different story. So the fact that 19.
Did not do as we as we had hoped on the innovation front is very different from the story and in.
In 18, and 18, we didnt really innovate.
We've talked about that quite candidly and how coming off from 20.
2017, which was extraordinary growth for the nutrient Nutrisystem legacy Nutrisystem business, we had planned.
Pretty much staying with the same thing that we had been doing going into 20 as we went from 17 to 18. So we didnt focus that much on on innovation given the fact that we felt the strength of our 2017 would carry us forward.
Moving into 2019, we did we did address that.
But the truth of the matter is we addressed it in a way that varied from the amount of from the work that we did in 2014 and 27, where we.
Did it we did it a different way and did more of it in the in in those in those times and what we're seeing now is that the dynamics of the marketplace have changed and again, we've been conducting extensive research received significant consumer input and we're implementing live testing.
As we go forward and believe that we do have really strong things coming up for us and as we head into 2020 so.
It's hard to go through and really say what is exactly differing from our methodology that we used in 18 to get ready to 19, but again were going back more to our hand book in 2014, which is much much more.
Live testing live implementation and things along those lines and.
Really focus and I think you know it doesn't go unnoticed that you know the second half of last year for the nutrition.
For Nutrisystem, we were while we were focused we had a lot of other things that we were working on all so that's not an excuse but again as we look towards 2020.
No all hands on deck, and again going back to the Formula.
Around innovation that we know works.
Okay. Thanks for the perspective.
Your next question comes from Sean Wieland with Piper Jaffrey. Your line is open.
Hi, Thank you I'm, so sorry to hear about.
Yes, really put us we always put a smile on our face and.
Yes.
Hopefully for us.
Yeah.
So.
Well.
The first on health care.
The growth that you had to that in 2020 can how much of that is.
Driven by the.
The new crime agreement that you're not you're hinting at.
Now, we're not breaking that out yet Sean.
We will.
As we get yes.
Probably two or.
Maybe the JP Morgan conference or in their typical February when we give the components.
It is it is not an insignificant piece.
The well that new contract in auto mentioned is a great win and we do have business that we won this year with Walmart that is just now.
Got to be ramping up in late 19, thats going to be a piece of it.
And we also have just we've got great organic growth success with that.
The base member pay Prime business that we've had for several years now that we've been getting smarter to how we're implementing.
The right type of advertising is the right time of the year to activate that base of the original 41 million eligible prime numbers, there and keep in mind listen you know the majority of our revenue is still is with Silversneakers.
So.
You can use that I mean solar speakers are still carrying that growth.
That growth trajectory.
Yes.
What do you think that conversion rate could be of the 1.2 million members. How many of those would you expect to have become members.
Yeah, we havent typically talked about the conversion rates before.
I will say that it is exciting because I do look at this as a.
Brand, new fishing licenses with a cohort of individuals very demurred different demographic from what I would say our base Prime membership is from and I think there's a there's there's.
Potential for newness factor.
That goes along with that Med supp.
Insurance product they have been so I'm optimistic, but I'm not ready to go out there with estimates yet yeah. Let me just say those wondering we've learned about prime and now Weve learned about Silversneakers is your willingness to co market your willingness to market will be a great determinant factor on how you get activations going and I have to say that this particular.
Partner is very committed to partnering and putting co marketing programs together so.
Okay.
Switching gears marketing expense.
What is.
What does that look like.
Can you tell us first off was there how much of that marketing expense was less for healthcare and then what does that spend look like for the remainder of the year.
Yes.
You had about bear with me one set of Sean.
You had about $4 million of that healthcare expense related to the healthcare segment with the remainder in the nutrition.
I want to point out that the number that $4 million for for healthcare, we still expect a 12 million dollar media spend for all of 2019, the number that you see in the line item.
The 4 million is inclusive of other overhead.
Payroll benefits.
Some other items I'd say about.
Roughly 70% of that number relates media with the remainder relates to other overhead so.
The point being you may not see it add up to $12 million because theres other cost items associated with that which we had reclassed out of our cost of sales out of the separate line item in 2019.
Okay.
Thanks for that and then.
On the nutrition side of the business I, just haven't heard any commentary on the pricing environment and if that has had any impact on the revised guidance.
Well actually one of the things that we've been able to do on a regular basis is.
Increase in price so.
This year, we did go out with some.
Promotional offers and.
But very recently in July we ended up increasing the price on both the men's and women's program across the board by.
10, $10 I believe it was and we also are removing.
Some of the are removing the promotion from the men's program. So its something we constantly look at and we are always.
Testing and validating.
The impact that it has not just only on price on on response.
Response, the calls or the traffic to the web site, but also on conversion. So that was a nice win for us that we have going into the second half of the year and that will roll into into.
2020.
Okay. Thank you.
Your next question comes from Mike Petusky with Barrington Research Your line is open.
Yes.
A quick follow up for John John I understand you can't get into specifics, but I'm just curious as you think about innovation.
Okay, and messaging is sort of low carb.
Paleo.
This is sort of manner of eating which.
Frankly.
Does have a lot of following.
On Instagram is in various digital outlets I mean is that going to be a bigger part of.
Of what you guys do going forward or for now thanks.
Yes, that's a good question I would say remember that we have the two different brands. So we have both nutrisystem and the South Beach diet and I won't disclose anything specifically about the future for either brands in terms of what we're doing on the innovation front, but the South Beach diet is entirely focused on low carbon friendly options.
Okay. Thank you.
Okay.
There are no further questions at this time I will now turn the call back over to Mr. Donato Tramuto.
Tramuto.
Very good. Thank you very much and again I want to thank all of you for joining us we apologize for the length of the call. However, there as you can tell a lot of.
A lot of updates make it a great evening everyone. Thank you.
This concludes today's conference call you may now disconnect.