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Tivity Health Reports Second-Quarter 2017 Results and Affirms Financial Guidance for 2017

NET INCOME FROM CONTINUING OPERATIONS OF $17.2 MILLION,
OR $0.41 PER DILUTED SHARE; REVENUE OF $138.9 MILLION; EBITDA OF $31.7 MILLION

NASHVILLE, Tenn., July 27, 2017 (GLOBE NEWSWIRE) -- Tivity Health, Inc. (NASDAQ:TVTY) today announced financial results for the second quarter ended June 30, 2017.

Second-Quarter 2017 Financial Highlights 

  • Revenues increased by 11.1% to $138.9 million compared with $125.0 million for the second quarter of 2016, driven by growth in all three of the Company’s product lines. 
     
  • Net income from continuing operations was $17.2 million, or $0.41 per diluted share, compared with $20.0 million, or $0.54 per diluted share, for the second quarter of 2016. Results for the second quarter of 2017 include an effective income tax rate of 35.7%. Results for the second quarter of 2016 include an effective income tax rate of 0%, due to tax benefits derived from utilizing net operating loss carryforwards from 2015 that were previously subject to a valuation allowance. For illustration, had net income from continuing operations for the second quarter of 2016 been subject to a normalized tax rate of 40.0%, net income would have been $12.0 million or $0.32 per diluted share.
     
  • Weighted average diluted shares outstanding for the second quarter of 2017 increased to 42.4 million, 13.8% higher than the second quarter of 2016. The diluted share count increase was significantly impacted by the 191% increase in the Company’s weighted average stock price in the second quarter of 2017 compared with the second quarter of 2016.
     
  • EBITDA increased 21.9% to $31.7 million compared with $26.0 million for the second quarter of 2016. EBITDA margin increased to 22.8% for the second quarter of 2017 compared with 20.8% for the second quarter of 2016. See pages 9-10 for a reconciliation of non-GAAP financial measures.
     
  • Cash flow from operations was $37.0 million for the second quarter of 2017, and free cash flow totaled $36.0 million. Funded debt was $189.8 million at the end of the second quarter of 2017, and the ratio of total debt to trailing 12 months EBITDA, as calculated under the Company’s credit facility, improved to 1.5 from 1.9 at the end of 2016.  At June 30, 2017, the Company had cash and cash equivalents of $7.8 million.


TIVITY HEALTH, INC.
Financial Highlights
(Dollars in millions, except per-share data)
See pages 9-10 for a reconciliation of non-GAAP financial measures
 
    Three Months Ended   Six Months Ended  
  June 30,   June 30,  
   2017    2016    2017    2016  
Revenues $ 138.9   $ 125.0   $ 279.9   $ 251.0  
Per diluted share:                
Net income from continuing operations,                
GAAP basis $ 0.41   $ 0.54   $ 0.79   $ 1.06  
Business separation expense   -     -     0.02     -  
Restructuring charges   -     -     0.01     -  
Adjusted net income from continuing                
operations, non-GAAP basis $ 0.41   $ 0.54   $ 0.82   $ 1.06  
Weighted average diluted common shares                    
outstanding (in thousands)   42,369     37,227     41,456     37,043  
                 

 

“Tivity Health continued to produce strong operating and financial results during the second quarter, through fierce execution from our colleagues throughout the Company,” said Donato Tramuto, Tivity Health’s Chief Executive Officer. “Due to our performance for the first six months of 2017 and the substantial visibility our business model provides into the remainder of the year, we believe we are well-positioned to achieve our financial guidance for the full year.

“We are also pleased with our ongoing work on a variety of pilot projects that are designed to increase member engagement and participation and, thereby, improve the future rate of our revenue growth.  We plan to continue investing in these projects throughout 2017 and into next year, and we expect to begin generating an initial return on investment beginning in 2018. We believe we have a tremendous long-term opportunity to increase participation in both our SilverSneakers® and Prime® programs within each program’s existing base of millions of members who are already eligible to enroll and participate. While much work remains to be done on the pilots to understand their results and potential, we are encouraged by developments thus far. We believe this initiative will enable us to significantly expand the number of our members whose physical, emotional and social well-being are improved by our programs, helping them lead their best lives, with dignity, vitality and purpose.”

Adam Holland, Tivity Health’s Chief Financial Officer, added, “As anticipated, our second-quarter financial performance enabled us to make a reduction in funded debt during the quarter, even as we invested in the Company pilots and began to build our cash balance. We expect to continue each of these actions in the second half of 2017.”

Affirms 2017 Financial Guidance

Tivity Health announced today that, based on second-quarter and first-half results and the Company’s outlook for the remainder of 2017, it has affirmed its financial guidance for 2017, as follows:

  • revenues in a range of $550 million to $558 million;
  • adjusted EBITDA in a range of $119 million to $123 million; and
  • adjusted earnings per diluted share in a range of $1.50 to $1.58.

The guidance for adjusted EBITDA and adjusted earnings per diluted share reflects the exclusion of pre-tax restructuring and business separation expenses totaling $2.4 million that were incurred in the first quarter of 2017.  See page 10 for a reconciliation of adjusted earnings per diluted share guidance to earnings per diluted share guidance.  The Company does not provide a reconciliation of adjusted EBITDA guidance because certain information required for such reconciliation is not determinable with reasonable certainty.  

This guidance for 2017 now includes the following assumptions:

  • depreciation and amortization expense of approximately $3 million;
  • total interest expense of approximately $15 million;
  • a federal income tax rate for the remainder of the year of approximately 39%;
  • weighted average diluted shares outstanding of approximately 42.5 million for the full year, with an expected fourth quarter diluted share count of approximately 43.5 million;
  • free cash flow of $90 million to $95 million; and
  • capital expenditures of $8 million to $10 million.

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 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. Presentation materials related to the conference call may also be accessed by going to www.tivityhealth.com and clicking Investors. For those who cannot listen to the live broadcast, a telephonic replay will be available for one week at 719-457-0820, code 8810194, and the replay will also be available on the Company’s web site for the next 12 months.

Safe Harbor Provisions

This press release contains forward-looking statements, including our guidance and financial expectations for future periods, which are based upon current expectations, involve a number of risks and uncertainties and are subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company, including, without limitation, all statements regarding the Company’s future earnings, revenues and results of operations. Those forward-looking statements are subject to the finalization of the Company’s quarterly financial accounting procedures and may be affected by certain risks and uncertainties, including, but not limited to:

  • the risks associated with recent changes in the Company’s senior management team;
  • the Company’s ability to sign and implement new contracts for its solutions;
  • the Company’s ability to accurately forecast the costs required to successfully implement new contracts;
  • the Company’s ability to anticipate change and respond to emerging trends for healthcare and the impact of the same on demand for the Company’s products and services;
  • the Company’s ability to develop new products;
  • the Company’s ability to anticipate and respond to strategic changes, opportunities and emerging trends in the Company’s industry and/or business and to accurately forecast the related impact on the Company’s revenues and earnings;
  • the Company’s ability to renew and/or maintain contracts with its customers under existing terms or restructure these contracts on terms that would not have a material negative impact on the Company’s results of operations;
  • the Company’s ability to accurately forecast the Company’s revenues, margins, earnings and net income, as well as any potential charges that the Company may incur as a result of changes in its business and leadership;
  • the Company’s ability and/or the ability of its 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 risks associated with deriving a significant concentration of revenues from a limited number of customers;
  • the risks associated with changes in macroeconomic conditions;
  • the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of our information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties to customer, employee or Company information or protected health information and lead to enforcement actions, fines and other litigation against the Company;
  • the Company’s ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed the Company’s resources;
  • the Company’s ability to service its debt and remain in compliance with its debt covenants;
  • the Company’s ability to obtain adequate financing to provide the capital that may be necessary to support its operations;
  • the ability of the Company’s customers to maintain the number of covered lives enrolled in the plans during the terms of its agreements;
  • counterparty risk associated with the Company’s cash convertible notes hedges;
  • the risks associated with valuation of the cash convertible notes hedges and the cash conversion derivative, which may result in volatility to the Company’s consolidated statements of comprehensive income (loss) if these transactions do not completely offset one another;
  • the impact of any new or proposed legislation, regulations and interpretations relating to Medicare or Medicare Advantage;
  • the impact of litigation involving the Company and/or its subsidiaries;
  • the impact on the Company’s operations and/or demand for its services of future state and federal legislation and regulations applicable to the Company’s business, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010;
  • current geopolitical turmoil, the continuing threat of domestic or international terrorism, and the potential emergence of a health pandemic or infectious disease outbreak; and
  • other risks detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and other filings with the Securities and Exchange Commission

The Company undertakes no obligation to update or revise any such forward-looking statements.

About Tivity Health

Tivity Health, Inc. is a leading provider of fitness and health improvement programs, with strong capabilities in developing and managing network solutions. Through its existing three networks, SilverSneakers® - the nation’s leading fitness program for older adults, Prime® Fitness and WholeHealth Living™, Tivity Health is focused on targeted population health for those 50 and over. With more than 14.5 million Americans eligible for SilverSneakers, over 10,000 fitness centers in the Prime Fitness Network, and more than 25 years of clinical and operational expertise in managing specialty health benefits and networks, including chiropractic services, physical therapy, occupational therapy, speech therapy, acupuncture, massage and complementary and alternative medicine (CAM) services, the Company touches millions of consumers across the country and works directly with hundreds of healthcare practitioners and many of the nation’s largest payers and employers.  Learn more at www.tivityhealth.com.


TIVITY HEALTH, INC.  
CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
   
ASSETS  
   
 

 
  June 30, 2017     December 31, 2016    
Current assets:              
Cash and cash equivalents   $ 7,796     $ 1,602    
Accounts receivable, net     54,900       50,424    
Prepaid expenses     4,225       3,409    
Other current assets     2,193       2,250    
Cash convertible notes hedges, current     160,876          
Income taxes receivable           426    
Total current assets     229,990       58,111    
                   
Property and equipment:                  
Leasehold improvements     10,338       10,144    
Computer equipment and related software               25,097       23,024    
Furniture and office equipment     8,153       8,670    
Capital projects in process     1,633       2,079    
      45,221       43,917    
Less accumulated depreciation     (36,225 )     (35,586 )  
      8,996       8,331    
                   
Other assets     8,406       6,688    
Cash convertible notes hedges, long-term           48,361    
Long-term deferred tax asset     47,346       59,562    
Intangible assets, net     29,049       29,049    
Goodwill, net     334,680       334,680    
Total assets   $ 658,467     $ 544,782    



TIVITY HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
    June 30, 2017     December 31, 2016  
Current liabilities:            
Accounts payable   $ 25,649     $ 26,029  
Accrued salaries and benefits     8,818       18,686  
Accrued liabilities     35,242       33,623  
Other current liabilities     327       397  
Cash conversion derivative, current     160,876        
Current portion of long-term debt     142,979       46,046  
Current portion of long-term liabilities     4,895       7,582  
Total current liabilities     378,786       132,363  
                 
Long-term debt     39,412       164,297  
Cash conversion derivative, long-term           48,361  
Other long-term liabilities     6,263       10,463  
                 
Stockholders' equity:                
                 
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding            
Common stock $.001 par value, 120,000,000 shares authorized, 39,350,726 and
38,933,580 shares outstanding, respectively
    39       39  
Additional paid-in capital     346,185       341,270  
Accumulated deficit     (84,036 )     (119,327 )
Treasury stock, at cost, 2,254,953 shares in treasury     (28,182 )     (28,182 )
Accumulated other comprehensive loss           (4,502 )
Total stockholders' equity     234,006       189,298  
Total liabilities and stockholders' equity   $ 658,467     $ 544,782  



TIVITY HEALTH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except earnings (loss) per share data)
(Unaudited)
 
  Three Months Ended
  Six Months Ended
 
  June 30,
    June 30,
   
  2017     2016
  2017
      2016    
                         
Revenues $ 138,914     $ 125,003   $ 279,884     $ 251,016  
Cost of services (exclusive of depreciation and amortization of $648, $1,534, $1,305
and $3,064, respectively, included below)
  99,071       88,879     201,470       180,258  
Selling, general & administrative expenses   8,176       10,107     16,538       19,519  
Depreciation and amortization   789       1,877     1,576       3,749  
Restructuring and related charges   (52 )     2     685       41  
                             
Operating income   30,930       24,138     59,615       47,449  
Interest expense   4,130       4,176     7,964       8,281  
                             
Income before income taxes   26,800       19,962     51,651       39,168  
Income tax expense   9,560           18,931        
                             
Net income from continuing operations   17,240       19,962     32,720       39,168  
Loss from discontinued operations, net of income tax   (3,673 )     (195,454 )   (3,893 )     (228,557 )
Net income (loss)   13,567       (175,492 )   28,827       (189,389 )
Less: net income attributable to non-controlling interest         104          

416
 
Net income (loss) attributable to Tivity Health, Inc. $

13,567
    $ (175,596 ) $

28,827
    $ (189,805

)
                             
Earnings (loss) per share attributable to
       Tivity Health, Inc. - basic:
                           
Continuing operations $ 0.44     $ 0.55   $ 0.84     $ 1.08  
Discontinued operations $ (0.09 )   $ (5.41 ) $ (0.10 )   $ (6.34 )
Net income (loss) (1) $ 0.35     $ (4.85 ) $ 0.74     $ (5.25 )
                             
Earnings (loss) per share attributable to
       Tivity Health, Inc. - diluted:
                             
Continuing operations $ 0.41     $ 0.54   $ 0.79     $ 1.06  
Discontinued operations $ (0.09 )   $ (5.25 ) $ (0.09 )   $ (6.18 )
Net income (loss) (1) $ 0.32     $ (4.72 ) $ 0.70     $ (5.12 )
                             
Comprehensive income (loss) $ 17,957     $ (175,656 ) $ 33,329     $ (188,507 )
                             
Weighted average common shares                            
and equivalents:                            
Basic   39,246       36,172     39,158       36,140  
Diluted   42,369       37,227     41,456       37,043  
                             
(1) Figures may not add due to rounding.                            



TIVITY HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
    Six Months Ended
June 30,
 
    2017     2016  
Cash flows from operating activities:            
Net income from continuing operations   $ 32,720     $ 39,168  
Net loss from discontinued operations     (3,893 )     (228,557 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of business
    acquisitions:
               
Depreciation and amortization     1,589       25,324  
Amortization of deferred loan costs     1,246       1,103  
Amortization of debt discount     3,911       3,698  
Share-based employee compensation expense     3,362       5,323  
Loss on impairment of held for sale assets           156,198  
Loss on sale of TPHS business     444       4,826  
Loss on release of cumulative translation adjustment     3,044        
Equity in income from joint ventures           (303 )
Deferred income taxes     18,755       7,835  
(Increase) decrease in accounts receivable, net     (4,398 )     17,263  
Decrease in other current assets     869       3,329  
Decrease in accounts payable     (1,480 )     (4,100 )
(Decrease) increase in accrued salaries and benefits     (11,953 )     4,989  
Decrease in other current liabilities     (2,268 )     (737 )
Other     (1,888 )     (3,124 )
Net cash flows provided by operating activities   $ 40,060     $ 32,235  
                 
Cash flows from investing activities:                
Acquisition of property and equipment   $ (2,244 )   $ (10,330 )
Investment in joint ventures           (865 )
Proceeds from sale of MeYou Health           5,156  
Other           (537 )
Net cash flows used in investing activities   $ (2,244 )   $ (6,576 )
                 
Cash flows from financing activities:                
Proceeds from issuance of long-term debt     274,425       242,301  
Payments of long-term debt     (308,496 )     (253,902 )
Payments related to tax withholding for share-based compensation     (1,066 )     (548 )
Exercise of stock options     2,757       30  
Deferred loan costs     (2,452 )      
Change in cash overdraft and other     1,558       (8,726 )
Net cash flows used in financing activities   $ (33,274 )   $ (20,845 )
                 
Effect of exchange rate changes on cash   $ 1,652     $ 538  
                 
Less: net increase in discontinued operations cash and cash equivalents   $     $ 950  
                 
Net increase in cash and cash equivalents   $ 6,194     $ 4,402  
                 
Cash and cash equivalents, beginning of period     1,602       233  
                 
Cash and cash equivalents, end of period   $ 7,796     $ 4,635  



  TIVITY HEALTH, INC.  
  RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES  
  (Unaudited)  
     
  Reconciliation of EBITDA from Continuing Operations, Non-GAAP Basis  
  to Net Income from Continuing Operations, GAAP Basis  
  (In thousands)  
     
      Three Months Ended
June 30, 2017
    Three Months Ended
June 30, 2016
 
      $ in thousands     $ in thousands  
  EBITDA from continuing operations, non-GAAP basis (1)   $ 31,719     $ 26,015    
  Depreciation and amortization     (789 )     (1,877 )  
  Interest expense     (4,130 )     (4,176 )  
  Income tax expense     (9,560 )        
  Net income from continuing operations, GAAP basis   $ 17,240     $ 19,962    

(1) EBITDA from continuing operations 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 from continuing operations in isolation or as a substitute for net income from continuing operations determined in accordance with accounting principles generally accepted in the United States.


  Reconciliation of Adjusted Net Income from Continuing Operations 
  Per Share (“EPS”), Non-GAAP Basis to EPS, GAAP Basis
   
      Six Months Ended
June 30, 2017
 
  Adjusted EPS, non-GAAP basis (2)   $ 0.82  
  EPS (loss) attributable to business separation costs (3)     (0.02 )
  EPS (loss) attributable to restructuring charges (4)     (0.01 )
  EPS guidance, GAAP basis (5)   $ 0.79  

(2) Adjusted EPS is a non-GAAP financial measure.  The Company excludes EPS (loss) attributable to business separation expenses and restructuring charges from this measure because of its comparability to the Company's historical operating results.  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 EPS in isolation or as a substitute for EPS determined in accordance with accounting principles generally accepted in the United States.

(3) EPS (loss) attributable to business separation costs consists of pre-tax charges of $1,639,000 related to the separation of the Network Solutions business from the disposed total population health business.  The tax rate applied to these costs was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.

(4) EPS (loss) attributable to restructuring charges consists of pre-tax charges of $685,000 associated with the 2016 restructuring of corporate support infrastructure.  The tax rate applied to these restructuring charges was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.

(5) Figures may not add due to rounding.


  Reconciliation of Adjusted EPS Guidance, Non-GAAP Basis 
  to EPS Guidance, GAAP Basis
   
      Fiscal Year Ending
December 31, 2017
 
  Adjusted EPS guidance, non-GAAP basis (6)   $ 1.50 - 1.58  
  EPS (loss) guidance attributable to business separation costs (7)     (0.02 )
  EPS (loss) guidance attributable to restructuring charges (8)     (0.01 )
  EPS guidance, GAAP basis   $ 1.47 – 1.55  

(6) Adjusted EPS guidance is a non-GAAP financial measure.  The Company excludes EPS (loss) guidance attributable to business separation expenses and restructuring charges from this measure because of its comparability to the Company's historical operating results.  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 adjusted EPS guidance in isolation or as a substitute for EPS guidance determined in accordance with accounting principles generally accepted in the United States.

(7) EPS (loss) guidance attributable to business separation costs consists of pre-tax charges of $1,639,000 related to the separation of the Network Solutions business from the disposed total population health business.  The tax rate applied to these costs was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.

(8) EPS (loss) guidance attributable to restructuring charges consists of pre-tax charges of $737,000 associated with the 2016 restructuring of corporate support infrastructure.  The tax rate applied to these restructuring charges was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.

Investor Relations Contact:
Chip Wochomurka
(615) 614-4493
chip.wochomurka@tivityhealth.com

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Tivity Health, Inc.