Tivity Health Reports First-Quarter 2020 Results

NASHVILLE, Tenn., May 6, 2020 /PRNewswire/ -- Tivity Health, Inc. (NASDAQ:TVTY) today announced financial results for the first quarter ended March 31, 2020.

"Both our Healthcare and Nutrition business units performed well during January, February, and the first two weeks of March. While the coronavirus pandemic impacted our business beginning in mid-March, the momentum early in the quarter, the strength of our brands, and the ingenuity of our colleagues allowed us to pivot and deliver a solid first quarter," said Bob Greczyn, Tivity Health's Interim Chief Executive Officer.

First Quarter Highlights and Business Update:

• The Healthcare Business Unit exceeded adjusted EBITDA guidance;
• The Nutrition Business Unit exceeded revenue and adjusted EBITDA guidance driven by new customer growth in Nutrisystem;
• Accelerated and expanded digital capabilities and virtual offerings to keep SilverSneakers members focused on health, activity, and social connectivity;
• Innovated with health plan partners and other agencies to create broader nutrition and fitness offerings;
• Initiated cost reductions including the furlough of 13% of the workforce, reduction of base salaries for highly compensated employees for approximately four months, and reduction of board cash compensation; and
• Enhanced liquidity further with working capital management and tax savings under the CARES Act.

Mr. Greczyn continued, "Several key Nutrisystem metrics trended positively in the first quarter including new customer starts, cost to acquire customers, and average price per order, as well as others. While our Healthcare business has been recently pressured as a result of nearly all our partner locations being closed due to the pandemic, our team promptly implemented innovative and meaningful methods to continue to serve the members of our fitness programs through a variety of virtual settings.  Early 2020 momentum coupled with our team's thoughtful cost management actions delivered a strong cash flow quarter and enhanced our liquidity position.  I believe that our response and the actions taken over the past several weeks will set the Company up for success and help to partially offset any near-term financial impact. We will continue to be diligent in our actions to ensure the long-term success of the company."

Exploration of Strategic Alternatives for the Nutrition Business

"Since February 2020, the Board of Directors has been engaged in a comprehensive review of the Company's long-term strategy, including reviewing the company's core capabilities and ability to best deliver increased shareholder value through actions that would improve our balance sheet and best focus management on the creation of value. The Board has come to the conclusion to explore strategic alternatives with respect to the Nutrition business, including a possible transaction," said Anthony Sanfilippo, Chairman of the Board of Tivity Health. "We have engaged Lazard as the Company's financial advisor."

CEO Search Update

"Tivity Health's CEO search is well underway," said Mr. Sanfilippo. "We've been pleased by the interest in leading our company from a group of highly qualified individuals. We expect the search will be successfully concluded in the near term."

Outlook

"Given the rapidly evolving nature of COVID-19, we are withdrawing our guidance for 2020," said Mr. Greczyn. "We remain confident in our business model and believe in the strength and resilience of our brands. While there are challenges to navigate in the near term, we believe our fundamentals, as well as our end-markets, are solid and the long-term prospects for our business remain intact."

Total revenues in the first quarter of $337.7 million increased $123.6 million, or approximately 58%, compared to the first quarter of 2019 driven by a full quarter of Nutrition segment revenues, representing an increase of $120.4 million, and an increase in Healthcare segment revenues of $3.2 million. 

Net loss in the first quarter of $(198.1) million included a non-cash impairment charge of $(199.5) million in the Nutrition segment, which lowered the carrying amount of goodwill by $(119.5) million and the Nutrisystem tradename by $(80.0) million.  The adverse change in market conditions resulting from the COVID-19 pandemic prompted management to conduct an impairment evaluation and ultimately drove the majority of the impairment charge recorded.  The Company does not expect this non-cash impairment charge to have an impact on future operations, or affect its liquidity, cash flows from operating activities, or compliance with the financial covenants in its credit agreement.

Adjusted EBITDA was $28.8 million for the first quarter, representing a decrease of $10.7 million compared to the first quarter of 2019.  This decrease was driven primarily by a full quarter of Nutrition segment results, representing a decrease of $14.8 million, partially offset by an increase in Healthcare segment Adjusted EBITDA of $4.1 million. 

First quarter revenues in the Healthcare segment increased by $3.2 million in 2020 compared to the first quarter of 2019, primarily as a result of an increase in Prime Fitness revenue of $4.1 million driven by an increase in average subscribers.  While SilverSneakers revenue ended the first quarter slightly down compared to the prior year, year-to-date SilverSneakers revenue through February 2020 increased approximately $11 million, or 13.7%, compared to the same period in the prior year. 

Adjusted EBITDA for the Healthcare segment in the first quarter of 2020 increased by $4.1 million.  Adjusted EBITDA margin improved by 220 basis points, primarily driven by a reduction in marketing expense, professional fees, and employee bonus expense.

Revenues and Adjusted EBITDA in the Nutrition segment were $178.0 million and ($1.4) million, respectively, for the first quarter.  Nutrisystem DTC revenue of $155.6 million was down 1% year over year with new customer growth up approximately 4% over the same period, indicating that the program and messaging is resonating with consumers. While the average selling price for Nutrisystem DTC was down year over year, it was partially offset by gains in length of stay.

As Americans' priorities shifted in mid-March due to the COVID-19 pandemic, the Nutrition segment pivoted messaging to focus on the ability to deliver healthy meals, shakes, and snacks to the home.  Since the new TV spots and digital creative launched in late March, customer response and program orders have been strong and exceeded expectations.  This trend continued through April and into May.

Conference Call

Tivity Health will hold a conference call to discuss this release today at 5:00 p.m. Eastern Time. Investors will have the opportunity to listen to the conference call live by dialing 877-683-2218 or 647-689-5447 for international callers and referencing code 4784066 or over the Internet by going to www.tivityhealth.com and clicking "Investors" at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a telephonic replay will be available for one week at 800-585-8367 or 416-621-4642 for international callers, code 4784066, and the replay will also be available on the Company's website for the next 12 months.

About Tivity Health

Tivity Health^® Inc. (Nasdaq: TVTY) is a leading provider of healthy life-changing solutions, including SilverSneakers^®, Nutrisystem^®, Prime^® Fitness, Wisely Well^TM, South Beach Diet^®, and WholeHealth Living^®.  We are actively addressing the social determinants of health, defined as the conditions in which we work, live and play. From improving health outcomes to reversing the narrative on inactivity, food insecurity, social isolation and loneliness, we are making a difference and are transforming the way we do health. Learn more at TivityHealth.com.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures. Reconciliations of certain of these non-GAAP measures to the comparable GAAP measures are included on pages 11-12.   

Cautionary Statement Regarding Forward-Looking Statements

This press release contains certain statements that are "forward-looking" statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and include all statements that are not historical statements of fact and those regarding the intent, belief or expectations, including, without limitation, statements that are accompanied by words such as "will," "expect," "outlook," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "target," or other similar words, phrases or expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, the Company's statements regarding its future financial performance. Readers of this press release should understand that these statements are not guarantees of performance or results. Many risks and uncertainties could affect actual results and cause them to vary materially from the forward-looking statements.

These risks and uncertainties include, among other things: impacts from the COVID-19 pandemic (including the response of governmental authorities to combat and contain the pandemic and the closure of fitness centers in our national network) on the Company's business, operations or liquidity; the risk that the significant indebtedness incurred in connection with the acquisition of Nutrisystem may limit the Company's ability to adapt to changes in the economy or market conditions, expose the Company to interest rate risk for the variable rate indebtedness and require a substantial portion of cash flows from operations to be dedicated to the payment of indebtedness; the Company's ability to service its debt, make principal and interest payments as those payments become due, and remain in compliance with its debt covenants; the risks associated with changes in macroeconomic conditions (including the impacts of any recession resulting from the COVID-19 pandemic), widespread epidemics, pandemics (such as the current COVID-19 pandemic) or other outbreaks of disease, geopolitical turmoil, and the continuing threat of domestic or international terrorism; the Company's ability to collect accounts receivable from its customers and amounts due under its sublease agreements; the market's acceptance of the Company's new products and services; the Company's ability to develop and implement effective strategies and to anticipate and respond to strategic changes, opportunities, and emerging trends in the Company's industry and/or business, as well as to accurately forecast the related impact on the Company's revenues and earnings; the risk that the Company's exploration of strategic alternatives for the Nutrition business unit will be unsuccessful in identifying or consummating any strategic alternative that yields additional value for the Company's stockholders, or that such exploration adversely affects the Nutrition business unit or the Company as a whole; the risk that the Company is unable to achieve the strategic benefits, synergies and growth opportunities that were anticipated in connection with the acquisition of Nutrisystem, either in a timely manner or at all; counterparty risk associated with the Company's interest rate swap agreements; the Company's ability to obtain adequate financing to provide the capital that may be necessary to support its current or future operations; the impact of any additional impairment of the Company's goodwill, intangible assets, or other long-term assets; the risks associated with potential failures of the Company's information systems, including as a result of telecommuting issues associated with the Company's employees working remotely; the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of the Company's information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties, loss, misappropriation, disclosure or corruption of customer, employee or the Company's information, or other data subject to privacy laws and may lead to a disruption in the Company's business, costs to modify, enhance, or remediate its cybersecurity measures, enforcement actions, fines or litigation against the Company's, or damage to its business reputation; the impact of any new or proposed legislation, regulations and interpretations relating to Medicare, Medicare Advantage, Medicare Supplement, e-commerce, advertising, and privacy and security laws; the impact of a reduction in Medicare Advantage health plan reimbursement rates or changes in plan design; the Company's ability to attract, hire, or retain key personnel or other qualified employees and to control labor costs; the risks associated with changes to traditional office-centered business processes and/or conducting operations out of the office in a work-from-home or remote model during adverse situations (e.g., during a crisis, disaster, or pandemic), which may negatively impact productivity and cause other disruptions to the Company's business; the effectiveness of the reorganization of the Company's business and the Company's ability to realize the anticipated benefits; the Company's ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed its resources; the impact of legal proceedings involving the Company and/or its subsidiaries, products, or services, including any claims related to intellectual property rights; the Company's ability to enforce its intellectual property rights; the risks associated with deriving a significant concentration of revenues from a limited number of the Company's Healthcare segment customers, many of whom are health plans; the Company's ability and/or the ability of its Healthcare segment customers to enroll participants and to accurately forecast their level of enrollment and participation in the Company's programs in a manner and within the timeframe anticipated by the Company; the Company's ability to sign, renew and/or maintain contracts with its Healthcare segment customers and/or the Company's fitness partner locations under existing terms or to restructure these contracts on terms that would not have a material negative impact on the Company's results of operations; the ability of the Company's Healthcare segment health plan customers to maintain the number of covered lives enrolled in those health plans during the terms of the Company's agreements; the Company's ability to add and/or retain paid subscribers in its Prime Fitness program; the impact of severe or adverse weather conditions, the current COVID-19 pandemic, and the potential emergence of additional health pandemics or infectious disease outbreaks on member participation in the Company's Healthcare segment programs; the impact of healthcare reform on the Company's business; the effectiveness of the Company's marketing and advertising programs; loss of, or disruption in the business of, any of the Company's food suppliers or the Company's fulfillment provider, or disruptions in the shipping of the Company's food products for its Nutrition segment; the impact of claims that the Company's Nutrition segment personnel are unqualified to provide proper weight loss advice; the impact of health- or advertising-related claims by the Company's Nutrition segment customers; competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; loss of any of the Company's Nutrition segment third-party retailer agreements and any obligations associated with such loss, or a reduction of orders for Company products by any such third-party retailers or reduced promotion by such third-party retailers of Company products; the Company's ability to continue to develop innovative weight loss programs and enhance its existing programs, or the failure of the Company's programs to continue to appeal to the market; the impact of claims from the Company's Nutrition segment competitors regarding advertising or other marketing practices; the Company's ability to develop and commercially introduce new products and services; the Company's ability to receive referrals from existing Nutrition segment customers, a decline in which could adversely impact the Company's customer acquisition costs; failure to attract spokespersons or negative publicity with respect to any of the Company's spokespersons; the Company's ability to anticipate change and respond to emerging trends for customer preferences and the impact of the same on demand for the Company's services and products; the seasonality of the business of the Company's Nutrition segment, particularly with respect to diet season; negative publicity with respect to the weight loss industry; the impact of increased governmental regulation on the Company's Nutrition segment; a significant portion of the Company's Nutrition segment revenue depends on the Company's ability to sustain subscriptions of its Nutrition segment's programs, and cancellations could impact the Company's future operating results; claims arising from the sale of ingested products; and other risks detailed in the Company's filings with the Securities and Exchange Commission.

For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to the Company's filings with the SEC. Except as required by law, the Company undertakes no obligation to update any such forward-looking statements to reflect new information, subsequent events or circumstances.

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SOURCE Tivity Health, Inc.