tvty-8k_20201105.htm
false 0000704415 0000704415 2020-11-05 2020-11-05

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported):  November 5, 2020

 

TIVITY HEALTH, INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware

 

000-19364

 

62-1117144

(State or other jurisdiction
of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

701 Cool Springs Boulevard

Franklin, Tennessee

 

 

37067

(Address of principal executive offices)

 

(Zip Code)

 

(800) 869-5311

(Registrant's telephone number, including area code)

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock - $.001 par value

 

TVTY

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company

 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 


Item 2.02. Results of Operations and Financial Condition.

On November 5, 2020, Tivity Health, Inc. (the “Company”) issued a press release announcing earnings results for the third quarter ended September 30, 2020, the text of which is attached hereto as Exhibit 99.1. In addition, the Company posted the supplemental information included in Exhibit 99.2 for the third quarter of 2020 to its website at www.tivityhealth.com.  The information furnished pursuant to this Item 2.02, Exhibit 99.1, and Exhibit 99.2 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

 

Exhibit 99.1

 

Press Release dated November 5, 2020

 

 

 

Exhibit 99.2

 

Supplemental Information

 

 

 

Exhibit 104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

TIVITY HEALTH, INC.

 

 

 

By: 

 

/s/ Adam Holland

 

 

 

Name: Adam Holland

 

 

 

Title: Chief Financial Officer

 

Date:  November 5, 2020

 

 

tvty-ex991_24.htm

Exhibit 99.1

 

 

TIVITY HEALTH DELIVERS STRONG RESULTS FOR THIRD QUARTER 2020

———————————

DIGITAL VISITS SURPASS ONE MILLION YEAR-TO-DATE

———————————

2021 HEALTH PLAN CONTRACT RENEWALS AT 99%

———————————

NUTRITION DIVESTITURE WILL STRENGTHEN THE BALANCE SHEET AND ENABLE FOCUS AND INVESTMENT IN THE HEALTHCARE BUSINESS

 

NASHVILLE, Tenn. (November 5, 2020) - Tivity Health, Inc. (NASDAQ:TVTY), today announced financial results for the third quarter ended September 30, 2020.

 

“The Healthcare and Nutrition divisions both delivered strong performance this quarter.  SilverSneakers continues to show strong brand affinity through the acceleration and continued adoption of our digital portfolio. Our healthcare business had another robust renewal and selling season. We will retain virtually all of our current health plan customers and gain net new eligible members in SilverSneakers from new clients and expanded markets,” said Richard Ashworth, President & Chief Executive Officer.  “Divesting the Nutrition division will significantly strengthen our balance sheet and will provide a great foundation to drive growth and to accelerate the execution of our strategic plan.”

Third Quarter Highlights and Business Update:

 

 

Healthcare division adjusted EBITDA increased by 5% compared to the prior year;

 

Healthcare division virtual visits grew by nearly 30% quarter over quarter;

 

Healthcare division year to date virtual visits through October surpassed one million;

 

Added over 350,000 new SilverSneakers eligibles for 2021 through new client wins and market expansions;  

 

Nutrisystem brand direct to consumer (DTC) revenue grew by 20% versus the prior year, driven by a 31% increase in revenue from new customers;

 

Executing on a Company-wide operational realignment that results in an organization that is lean, efficient and optimized for growth with capital available for necessary investments to enable us to deliver on strategic priorities;

 

Ended the quarter with cash on hand of $56.4 million after prepaying $39.7 million of principal amortization on term loan debt, resulting in the Company’s next quarterly installment being due in March 2022.

 

Mr. Ashworth continued, “In pursuit of a member-centric organization, we are focused on our healthcare business that will leverage SilverSneakers, Prime and WholeHealth Living, combining them with innovative digital engagement tools and data.   We are delivering new fitness offerings and social connectivity to engage more members in an omnichannel way: in the gym, through our virtual channels, and in the community to become a modern destination for healthy living. We will partner with best-in-class healthcare and consumer data partners to provide insights and power a digital engagement platform.”

 

 

 

 


TVTY Reports Third-Quarter Results

Page 2

November 5, 2020

 

Sale of the Nutrition Business

 

As previously announced, the Company has entered into a definitive agreement with Kainos Capital to divest Tivity Health’s Nutrition Business, which includes Nutrisystem® and South Beach Diet®, for a purchase price of $575 million in cash.

 

Upon closing of the transaction, Tivity Health will use a significant majority of the divestiture net proceeds to pay down debt, which will materially de-lever its balance sheet and provide significant additional financial flexibility to support the growth of its go-forward, focused Healthcare business.

 

The transaction is expected to close in the fourth quarter of this year, subject to the receipt of regulatory approval and other customary closing conditions, and is expected to result in a fourth quarter 2020 post-close net leverage ratio (as defined in the Company’s credit agreement) of no more than 2.8 times.

 

Third Quarter 2020 Financial Information

 

Dollars in millions, except per-share data

See pages 12-14 for a reconciliation of non-GAAP financial measures

 

 

Three Months Ended

September 30,

 

 

2020

2019

 

 

 

 

 

Revenues

$254.9

$303.9

 

Net Income (Loss)

$(42.4)

$13.9

 

Net Income (Loss) Margin

(16.6)%

4.6%

 

Adjusted EBITDA

$68.7

$56.8

 

Adjusted EBITDA Margin

26.9%

18.7%

 

Diluted Earnings Per Share

$(0.87)

$0.29

 

Adjusted Earnings Per Share

$0.72

$0.46

 

Cash Flows from Operating Activities

$34.0

$35.2

 

Free Cash Flow

$31.1

$28.8

 

 

Total revenues in the third quarter of $254.9 million decreased $49.0 million, or approximately 16%, compared to the third quarter of 2019, driven by a decrease in Healthcare segment revenues of $64.5 million, or approximately 40%, partially offset by an increase in Nutrition segment revenues of $15.5 million, or approximately 11%.

 

Net income (loss) for the third quarter was $(42.4) million, a decrease of $56.3 million compared to the third quarter of 2019.  Adjusted EBITDA was $68.7 million for the third quarter, representing an increase of approximately $11.9 million compared to the third quarter of 2019.  This increase was driven by an increase in Nutrition segment adjusted EBITDA of $10.1 million and an increase in Healthcare segment adjusted EBITDA of $1.8 million.

Net debt (total debt less cash and cash equivalents) improved by $33.7 million during the third quarter due to cash flow generation.  During the third quarter, the Company prepaid $39.7 million of principal amortization on its term loan debt, resulting in the Company’s next quarterly installment being due in March 2022.  

Healthcare Segment

 

 

 

 


TVTY Reports Third-Quarter Results

Page 3

November 5, 2020

 

 

Dollars in millions

 

 

Three Months Ended

September 30,

 

 

 

2020

2019

 

 

 

 

 

 

 

 

 

Healthcare Revenues

$95.5

$160.0

 

 

 

Healthcare Adjusted EBITDA

$41.0

$39.2

 

 

 

Healthcare Adjusted EBITDA Margin

42.9%

24.5%

 

 

 

 

Revenues in the Healthcare segment for the third quarter of 2020 decreased by $64.5 million compared to the third quarter of 2019, primarily as a result of a significant decrease in SilverSneakers revenue of $56.0 million resulting from fewer revenue-generating visits due to the COVID-19 pandemic.  Additionally, Prime Fitness revenue decreased by $8.8 million primarily due to membership terminations and suspensions.  

 

The Company’s revenue profile during the third quarter of 2020 is substantially different from the prior year due to the COVID-19 pandemic.  Revenue from per-member-per-month fees represented 59% of the Company’s SilverSneakers revenue in the third quarter of 2020, compared to 33% in the same quarter of 2019.    

Adjusted EBITDA for the Healthcare segment for the third quarter of 2020 increased by $1.8 million compared to the third quarter of 2019, with adjusted EBITDA margin improving by over 1,800 basis points.  The primary drivers include the high mix of per-member-per-month fees for SilverSneakers coupled with a reduction in fitness location visit costs for SilverSneakers and Prime, and cost reductions.

 

Nutrition Segment

 

Dollars in millions

 

Three Months Ended

September 30,

 

 

 

2020

2019

 

 

 

 

 

 

 

 

 

Nutrition Revenues

$159.4

$143.9

 

 

 

Nutrition Adjusted EBITDA

$27.7

$17.7

 

 

 

Nutrition Adjusted EBITDA Margin

17.4%

12.3%

 

 

 

 

Revenues in the Nutrition segment for the third quarter of 2020 increased by $15.5 million compared to the third quarter of 2019, driven by a $24.9 million, or 20%, increase in Nutrisystem brand DTC revenue.  This increase in revenue was partially offset by a decrease in non-core channels of $9.7 million.  

 

Adjusted EBITDA for the Nutrition segment in the third quarter of 2020 increased by $10.1 million compared to the third quarter of 2019, with adjusted EBITDA margin improving by 512 basis points.  The primary drivers were improved marketing efficiency and a decrease in television media as a percentage of total media expenses as the Company allocated more spending to its digital marketing program, combined with savings in employee compensation resulting from cost reduction plans and temporary salary reductions.

 

 

 

 

Outlook

 

 

 

 

 


TVTY Reports Third-Quarter Results

Page 4

November 5, 2020

 

Based on the Healthcare segment’s revenue and adjusted EBITDA(1) performance through the third quarter of 2020 and the outlook for the remainder of 2020, Tivity Health is providing guidance for annual 2020 Healthcare segment revenue in a range of $425 million to $432 million and adjusted EBITDA in a range of $143 million to $145 million.  

 

“We believe the financial and operational performance of our Healthcare segment in the second and third quarters reflect the ability of our business to address the challenges of the pandemic.  Based on early fourth quarter activity, we anticipate utilization costs in our Prime and WholeHealth Living businesses to increase as compared to the third quarter.  We remain focused on managing the business with financial discipline and completing the Nutrition segment divestiture, and we look forward to investing in our healthcare business for 2021 and beyond,” said Adam Holland, Chief Financial Officer.

 

 

(1)

Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization, restructuring expense, acquisition, integration, and project costs, transaction-related costs, impairment loss and CEO transition expenses.

 

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 1381965 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 1381965, 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 WellTM, 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 www.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 12-14.    

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

 

 

 

 


TVTY Reports Third-Quarter Results

Page 5

November 5, 2020

 

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: the Company's ability to consummate the announced transaction on the terms set forth in the purchase agreement; the risk that the conditions to the consummation of the announced transaction may not be satisfied on the terms expected or on the anticipated schedule; the risk of the occurrence of any event, change or other circumstance that could give rise to the termination of the purchase agreement; the failure to receive the anticipated benefits from the transaction; the risk of business disruption and customer loss (including, without limitation, difficulties in maintaining relationships with employees, customers or vendors); the risk that the Company’s expectations regarding the effect of the announced transaction on the Company’s leverage profile may not be achieved; risks related to diverting management attention from ongoing business operations; the outcome of any legal proceedings that may be instituted against the Company related to the transaction; the profitability of the Company’s healthcare business following consummation of the announced transaction; 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 the Company’s 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; 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 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, 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

 

 

 

 


TVTY Reports Third-Quarter Results

Page 6

November 5, 2020

 

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.

 

 

 

 


TVTY Reports Third-Quarter Results

Page 7

November 5, 2020

 

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.

 

Investor Relations Contact:

Bob East, Westwicke

(443) 213-0500; Tivity@Westwicke.com


 

 

 

 


TVTY Reports Third-Quarter Results

Page 8

November 5, 2020

 

TIVITY HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited) 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,440

 

 

$

2,486

 

Accounts receivable, net

 

 

36,952

 

 

 

97,596

 

Inventories

 

 

21,416

 

 

 

36,407

 

Prepaid expenses

 

 

14,046

 

 

 

18,255

 

Other current assets

 

 

9,145

 

 

 

6,993

 

Total current assets

 

 

137,999

 

 

 

161,737

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of

$59,531 and $42,510 respectively

 

 

49,205

 

 

 

52,909

 

Right-of-use assets, operating leases

 

 

32,071

 

 

 

41,518

 

Right-of-use assets, finance leases

 

 

1,195

 

 

 

1,680

 

Intangible assets, net

 

 

586,428

 

 

 

689,686

 

Goodwill, net

 

 

468,937

 

 

 

654,635

 

Other assets

 

 

20,940

 

 

 

23,740

 

Total assets

 

$

1,296,775

 

 

$

1,625,905

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

34,695

 

 

$

46,480

 

Accrued salaries and benefits

 

 

10,260

 

 

 

13,071

 

Accrued liabilities

 

 

44,471

 

 

 

56,068

 

Deferred revenue

 

 

14,583

 

 

 

12,037

 

Current portion of operating lease liabilities

 

 

13,390

 

 

 

13,131

 

Current portion of finance lease liabilities

 

 

654

 

 

 

624

 

   Current portion of other long-term liabilities

 

 

15,140

 

 

 

4,947

 

Total current liabilities

 

 

133,193

 

 

 

146,358

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

974,758

 

 

 

1,048,127

 

Long-term operating lease liabilities

 

 

20,297

 

 

 

30,321

 

Long-term finance lease liabilities

 

 

585

 

 

 

1,080

 

Long-term deferred tax liability

 

 

136,739

 

 

 

160,846

 

Other long-term liabilities

 

 

28,962

 

 

 

12,263

 

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock $.001 par value, 5,000,000 shares authorized,

   none outstanding

 

 

 

 

 

 

Common Stock $.001 par value, 120,000,000 shares authorized,

   48,616,619 and 48,156,786 shares outstanding, respectively

 

 

48

 

 

 

48

 

Additional paid-in capital

 

 

509,850

 

 

 

504,419

 

Accumulated deficit

 

 

(449,257

)

 

 

(237,284

)

Treasury stock, at cost, 2,254,953 shares in treasury

 

 

(28,182

)

 

 

(28,182

)

Accumulated other comprehensive loss

 

 

(30,218

)

 

 

(12,091

)

Total stockholders' equity

 

 

2,241

 

 

 

226,910

 

Total liabilities and stockholders' equity

 

$

1,296,775

 

 

$

1,625,905

)

 

 

 

 

 

 

 


TVTY Reports Third-Quarter Results

Page 9

November 5, 2020

 

TIVITY HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)

(Unaudited)

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

95,393

 

 

$

159,979

 

 

$

334,941

 

 

$

473,987

 

 

Products

 

 

159,516

 

 

 

143,918

 

 

 

520,221

 

 

 

384,382

 

 

Total revenues

 

 

254,909

 

 

 

303,897

 

 

 

855,162

 

 

 

858,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services (exclusive of depreciation of

   $2,486, $1,461, $6,515, and $4,320,   respectively, included below)

 

 

47,511

 

 

 

111,666

 

 

 

194,545

 

 

 

336,581

 

 

Products (exclusive of depreciation and

   amortization of $8,769, $6,409, $28,049, and $13,896, respectively, included below)

 

 

75,296

 

 

 

66,974

 

 

 

245,659

 

 

 

177,155

 

 

Total cost of revenue

 

 

122,807

 

 

 

178,640

 

 

 

440,204

 

 

 

513,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing expenses

 

 

44,509

 

 

 

46,719

 

 

 

182,686

 

 

 

125,470

 

 

Selling, general and administrative expenses

 

 

26,723

 

 

 

26,958

 

 

 

78,203

 

 

 

83,810

 

 

Depreciation and amortization

 

 

13,315

 

 

 

9,700

 

 

 

40,997

 

 

 

22,366

 

 

Impairment loss

 

 

66,198

 

 

 

 

 

 

265,698

 

 

 

 

 

Restructuring and related charges

 

 

1,136

 

 

 

281

 

 

 

2,888

 

 

 

4,225

 

 

Operating income (loss)

 

 

(19,779

)

 

 

41,599

 

 

 

(155,514

)

 

 

108,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

20,395

 

 

 

23,006

 

 

 

63,294

 

 

 

54,334

 

 

Income (loss) before income taxes

 

 

(40,174

)

 

 

18,593

 

 

 

(218,808

)

 

 

54,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

2,243

 

 

 

4,673

 

 

 

(6,795

)

 

 

18,157

 

 

Net income (loss)

 

 

(42,417

)

 

 

13,920

 

 

 

(212,013

)

 

 

36,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.87

)

 

$

0.29

 

 

$

(4.35

)

 

$

0.79

 

 

Diluted (1)

 

$

(0.87

)

 

$

0.29

 

 

$

(4.35

)

 

$

0.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

(39,570

)

 

$

10,081

 

 

$

(230,140

)

 

$

20,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,783

 

 

 

47,923

 

 

 

48,702

 

 

 

45,996

 

 

Diluted (1)

 

 

48,783

 

 

 

48,584

 

 

 

48,702

 

 

 

46,585

 

 

 

 

(1)

The impact of potentially dilutive securities for the three and nine months ended September 30, 2020 was not considered because the impact would be anti-dilutive.

 

 

 

 

 

 


TVTY Reports Third-Quarter Results

Page 10

November 5, 2020

 

TIVITY HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(212,013

)

 

$

36,271

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,997

 

 

 

22,366

 

Amortization and write-off of deferred loan costs

 

 

3,540

 

 

 

3,256

 

Amortization of debt discount

 

 

3,145

 

 

 

2,593

 

Share-based employee compensation expense

 

 

8,005

 

 

 

15,266

 

Impairment of goodwill and intangible assets

 

 

265,698

 

 

 

 

Deferred income taxes

 

 

(17,889

)

 

 

10,489

 

Decrease (increase) in accounts receivable, net

 

 

60,644

 

 

 

(1,407

)

Decrease in inventory

 

 

14,991

 

 

 

14,775

 

Decrease in other current assets

 

 

1,451

 

 

 

3,608

 

Increase (decrease) in accounts payable

 

 

3,479

 

 

 

(9,917

)

Decrease in accrued salaries and benefits

 

 

(2,811

)

 

 

(592

)

Decrease in other current liabilities

 

 

(11,379

)

 

 

(14,138

)

Increase in deferred revenue

 

 

2,546

 

 

 

345

 

Other

 

 

4,548

 

 

 

1,908

 

Net cash flows provided by operating activities

 

$

164,952

 

 

$

84,823

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

$

(13,265

)

 

$

(15,354

)

Business acquisitions, net of cash acquired

 

 

 

 

 

(1,062,818

)

Net cash flows used in investing activities

 

$

(13,265

)

 

$

(1,078,172

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

$

196,525

 

 

$

1,505,245

 

Payments of long-term debt

 

 

(276,100

)

 

 

(478,479

)

Payments related to tax withholding for share-based compensation

 

 

(3,293

)

 

 

(1,464

)

Exercise of stock options

 

 

719

 

 

 

701

 

Deferred loan costs

 

 

 

 

 

(30,189

)

Principal payments related to financing leases

 

 

(464

)

 

 

(34

)

Change in cash overdraft and other

 

 

(15,120

)

 

 

2,505

 

Net cash flows (used by) provided by financing activities

 

$

(97,733

)

 

$

998,285

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

$

 

 

$

(12

)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

$

53,954

 

 

$

4,924

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

2,486

 

 

$

1,933

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

56,440

 

 

$

6,857

 

 

 

 

 

 

 

 


TVTY Reports Third-Quarter Results

Page 11

November 5, 2020

 

TIVITY HEALTH, INC.

Segment Information

(In thousands)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Healthcare

 

 

Nutrition

 

 

Total Segments

 

 

Healthcare

 

 

Nutrition

 

 

Total Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

95,481

 

 

$

159,428

 

 

$

254,909

 

 

$

159,979

 

 

$

143,918

 

 

$

303,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated income (loss) before income taxes

 

 

 

 

 

 

 

 

 

$

(40,174)

 

 

 

 

 

 

 

 

 

 

$

18,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, integration and project costs

 

 

 

 

 

 

 

 

 

 

2,485

 

 

 

 

 

 

 

 

 

 

 

5,259

Transaction-related costs

 

 

 

 

 

 

 

 

 

 

2,755

 

 

 

 

 

 

 

 

 

 

 

Impairment loss

 

 

 

 

 

 

 

 

 

 

66,198

 

 

 

 

 

 

 

 

 

 

 

CEO transition costs

 

 

 

 

 

 

 

 

 

 

1,991

 

 

 

 

 

 

 

 

 

 

 

COVID-19 costs

 

 

 

 

 

 

 

 

 

 

591

 

 

 

 

 

 

 

 

 

 

 

Restructuring and related charges

 

 

 

 

 

 

 

 

 

 

1,136

 

 

 

 

 

 

 

 

 

 

 

281

Interest expense

 

 

 

 

 

 

 

 

 

 

20,395

 

 

 

 

 

 

 

 

 

 

 

23,006

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

13,315

 

 

 

 

 

 

 

 

 

 

 

9,700

Adjusted EBITDA

 

$

40,965

 

 

$

27,727

 

 

$

68,692

 

 

$

39,177

 

 

$

17,662

 

 

$

56,839

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Healthcare

 

 

Nutrition

 

 

Total Segments

 

 

Healthcare

 

 

Nutrition

 

 

Total Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

337,096

 

 

$

518,066

 

 

$

855,162

 

 

$

473,987

 

 

$

384,382

 

 

$

858,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated income (loss) before income taxes

 

 

 

 

 

 

 

 

 

$

(218,808)

 

 

 

 

 

 

 

 

 

 

$

54,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, integration and project costs

 

 

 

 

 

 

 

 

 

 

7,331

 

 

 

 

 

 

 

 

 

 

 

31,306

Transaction-related costs

 

 

 

 

 

 

 

 

 

 

2,755

 

 

 

 

 

 

 

 

 

 

 

Impairment loss

 

 

 

 

 

 

 

 

 

 

265,698

 

 

 

 

 

 

 

 

 

 

 

CEO transition costs

 

 

 

 

 

 

 

 

 

 

6,323

 

 

 

 

 

 

 

 

 

 

 

COVID-19 costs

 

 

 

 

 

 

 

 

 

 

1,851

 

 

 

 

 

 

 

 

 

 

 

Restructuring and related charges

 

 

 

 

 

 

 

 

 

 

2,888

 

 

 

 

 

 

 

 

 

 

 

4,225

Interest expense

 

 

 

 

 

 

 

 

 

 

63,294

 

 

 

 

 

 

 

 

 

 

 

54,334

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

40,997

 

 

 

 

 

 

 

 

 

 

 

22,366

Adjusted EBITDA

 

$

112,686

 

 

$

59,643

 

 

$

172,329

 

 

$

100,986

 

 

$

65,673

 

 

$

166,659


 

 

 

 


TVTY Reports Third-Quarter Results

Page 12

November 5, 2020

 

TIVITY HEALTH, INC.
RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES

(Unaudited)

Reconciliation of Adjusted EBITDA, Non-GAAP Basis

to Net Income, GAAP Basis (in thousands)

 

 

 

 

 

 

Three Months

Ended

September 30,

2020

 

 

 

 

% of Revenue

 

Three Months Ended

September 30,

2019

 

 

 

% of Revenue

Adjusted EBITDA, non-GAAP basis (1)

 

 

 $

68,692

 

 

 

26.9%

 $

56,839

 

 

18.7%

   Acquisition, integration, project and CEO transition costs (2)

 

 

 

(4,476

)

 

 

 

(5,259

)

 

   Transaction-related costs (3)

 

 

 

(2,755

)

 

 

 

 

 

   Impairment loss (4)

 

 

 

(66,198

)

 

 

 

 

 

   Restructuring charges (5)

 

 

 

(1,136

)

 

 

 

(281

)

 

   COVID-19 costs (6)

 

 

 

(591

)

 

 

 

 

 

EBITDA, non-GAAP basis (7)

 

 

 $

(6,464)

 

 

 

 $

51,299

 

 

   Depreciation and amortization

 

 

 

(13,315

)

 

 

 

(9,700

)

 

   Interest expense

 

 

 

(20,395

)

 

 

 

(23,006

)

 

   Income tax expense

 

 

 

(2,243

)

 

 

 

(4,673

)

 

Net income (loss), GAAP basis

 

 

$

(42,417

)

 

(16.6%)

$

13,920

 

4.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Adjusted EBITDA is a non-GAAP financial measure.  The Company excludes acquisition, integration, project costs, CEO transition costs, transaction-related costs, impairment loss, restructuring charges, and COVID-19 costs from this measure because of its comparability to the Company's historical operating results. The Company has updated its definition of Adjusted EBITDA to exclude transaction-related costs and impairment loss incurred during the third quarter of 2020. The Company considers transaction-related costs and impairment loss to be outside the performance of its ongoing core business operations and believes that presenting Adjusted EBITDA excluding transaction-related costs and impairment loss provides increased transparency as to the operating costs of its current business performance. The Company did not revise the prior period’s Adjusted EBITDA amounts because there were no costs similar in nature to these items. The Company believes it is useful to investors to provide disclosures of its operating results on the same basis as that used by management.  You should not consider Adjusted EBITDA in isolation or as a substitute for net income determined in accordance with U.S. GAAP.  Additionally, because Adjusted EBITDA may be defined differently by other companies in the Company’s industry, the non-GAAP financial measure presented here may not be comparable to similarly titled measures of other companies.

 

(2)

Acquisition, integration, project and CEO transition costs consist of pre-tax charges of $4,476 and $5,259 for the three months ended September 30, 2020 and 2019, respectively, incurred in connection with the acquisition and integration of Nutrisystem and other strategic projects and with the termination of our former CEO in February 2020 and the hiring of our new CEO in June 2020.

 

(3)

Transaction-related costs consist of pre-tax charges of $2,755 for the three months ended September 30, 2020 incurred in connection with the potential disposition and pending sale of our Nutrition business.

 

(4)

Impairment loss consists of pre-tax charges of $66,198 for the three months ended September 30, 2020 related to an impairment of goodwill allocated to the Nutrition segment.

 

(5)

Restructuring charges consist of pre-tax charges of $1,136 for the three months ended September 30, 2020 primarily related to a restructuring of our Healthcare division.  Restructuring charges consist of pre-tax charges of $281 for the three months ended September 30, 2019 primarily related to a restructuring of corporate support infrastructure.

 

(6)

COVID-19 costs consist of incremental, pre-tax charges of $591 incurred by the Nutrition division during the three months ended September 30, 2020 that were directly related to the COVID-19 pandemic.  Worker shortages at some of our warehouses due to COVID-19 resulted in charges in the third quarter related to increased labor rates and overtime for employees of our fulfillment provider as well as additional shipping and related charges as we transferred the fulfillment of certain orders to other warehouses that were farther from the customer’s delivery destination.

 

(7)

EBITDA is a non-GAAP financial measure.  The Company believes it is useful to investors to provide disclosures of its operating results and guidance on the same basis as that used by management.  You should not consider EBITDA in isolation or as a substitute for net income determined in accordance with U.S. GAAP.

 

Reconciliation of Free Cash Flow, Non-GAAP Basis

 

 

 

 


TVTY Reports Third-Quarter Results

Page 13

November 5, 2020

 

to Net Cash Flows Provided by Operating Activities, GAAP Basis (in thousands)

 

 

 

 

 

 

Three Months

Ended

September 30,

2020

 

 

 

Three Months

Ended

September 30,

2019

 

 

Nine Months

Ended

September 30,

2020

 

Free cash flow, non-GAAP basis (8)

 

 

 $