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Tivity Health Reports Fourth-Quarter 2017 Diluted EPS of $0.20 and Adjusted Diluted EPS of $0.41

REVENUES INCREASE 11.5% TO $139 MILLION

ANNOUNCES FINANCIAL GUIDANCE FOR 2018

NASHVILLE, Tenn., Feb. 22, 2018 (GLOBE NEWSWIRE) -- Tivity Health, Inc. (NASDAQ:TVTY) today announced financial results for the fourth quarter and year ended December 31, 2017.

Fourth-Quarter 2017 Financial Highlights

  • Revenues increased by 11.5% to $139.4 million driven by growth in all three of the Company’s lines of business. This compares to revenues of $124.9 million for the fourth quarter of 2016. 
     
  • Income from continuing operations was $8.6 million, a decrease of 28.9% from $12.1 million for the fourth quarter of 2016. Adjusted income from continuing operations increased 26.0% to $17.6 million compared to $14.0 million for the fourth quarter of 2016. The fourth quarter of 2017 excludes $2.6 million in pre-tax restructuring charges and $7.4 million of income tax expense related to tax reform legislation. Adjusted income from continuing operations for the fourth quarter of 2016 excludes $5.2 million of pre-tax business separation costs and restructuring charges and a $2.2 million favorable adjustment to pre-tax depreciation expense. See pages 11-14 for a reconciliation of non-GAAP financial measures.
     
  • Income from continuing operations per diluted share was $0.20 compared to $0.30 for the fourth quarter of 2016, and adjusted income from continuing operations per diluted share grew 17.1%, to $0.41 from $0.35 for the fourth quarter of 2016. The adjusted income per diluted share of $0.41 excludes a restructuring charge of $0.04 per diluted share and a charge of $0.17 per diluted share resulting from the 2017 tax reform legislation. See pages 11-14 for a reconciliation of non-GAAP financial measures.

  • Weighted average diluted shares outstanding increased to 43.4 million compared with 39.8 million for the fourth quarter of 2016. The most significant factor driving the diluted share count increase was the 56% increase in the Company’s weighted average stock price compared with the fourth quarter of 2016.
     
  • Adjusted EBITDA was $29.8 million, or 21.4% of revenues, which excludes $2.6 million of restructuring expenses, compared to adjusted EBITDA for the fourth quarter of 2016 of $29.1 million, or 23.3% of revenues, which excluded $5.2 million of business separation costs and restructuring charges. See pages 11-14 for a reconciliation of non-GAAP financial measures.
     
  • Cash flow from operations was $31.6 million, and free cash flow totaled $29.7 million. Total debt was $146.0 million, and the ratio of total debt to trailing 12 months EBITDA, as calculated under the Company’s credit facility, improved to 1.0, compared with 1.9 at the end of 2016. At December 31, 2017, the Company had cash and cash equivalents of $28.4 million. See pages 11-14 for a reconciliation of non-GAAP financial measures.

 

 
TIVITY HEALTH, INC.
Financial Highlights
(Dollars in millions, except per-share data)
See pages 11-14 for a reconciliation of non-GAAP financial measures
 
      Three Months Ended
December 31,
      Twelve Months Ended
December 31,
 
      2017   2016       2017   2016  
  Revenues   $ 139.4   $ 124.9       $ 556.9   $ 501.0  
  Per diluted share:                              
  Income from continuing operations, GAAP basis   $ 0.20    $ 0.30        $ 1.44    $ 1.47  
  Depreciation adjustment         (0.03 )           (0.03 )
  Business separation expense         0.02         0.02     0.03  
  Restructuring charges     0.04     0.06         0.05     0.08  
  Tax reform impact     0.17             0.17      
  Adjusted income from continuing operations, non-GAAP basis (1)   $ 0.41   $ 0.35       $ 1.68   $ 1.55  
                                 
  Weighted average diluted common shares outstanding (in thousands)     43,426     39,793         42,547     38,075  

(1) Figures may not add due to rounding.

 

“The fourth quarter capped off a solid year for Tivity Health as we experienced growth in all three lines of business,” said Donato Tramuto, Tivity Health’s Chief Executive Officer. “Our growth in eligible members for SilverSneakers® outpaced the growth in the overall Medicare Advantage market as we continued to increase our market share and our strategy has begun to show early signs of success with member awareness exceeding our expectations. We are also pleased with another strong growth year in Prime® Fitness as it continues to be our fastest growing line of business.

“In addition to the strong operational and financial results throughout the year, 2017 also marked the 25th anniversary of SilverSneakers. Our longevity in the market stands as a testament to the power of our brand and the impact on the lives of our members. I’m incredibly proud of our results and of the effort of all our hardworking colleagues here at Tivity Health.”

Adam Holland, Tivity Health’s Chief Financial Officer added, “During the fourth quarter, we were able to strengthen our balance sheet by paying down debt with our free cash flow. We're well positioned to drive future growth and I believe our initial 2018 outlook demonstrates the power of our business model against the backdrop of strong market demographics.”

During the fourth quarter of 2017, the Company initiated and completed a restructuring plan aimed at streamlining certain operations support functions.  The Company incurred approximately $2.6 million of pre-tax restructuring charges during the fourth quarter and does not expect additional material charges under this plan.  The Company anticipates annualized savings in 2018 of approximately $4 million from this restructuring.  

The Tax Cuts and Jobs Act of 2017 was signed into law during the fourth quarter, and the Company incurred a non-cash charge of $7.4 million, or $0.17 per diluted share, related to both the re-measurement of its deferred tax assets to the lower tax rate and the requirement under provisions of the new law to recalculate the impact of repatriation of its foreign earnings, which occurred earlier in the year.

2018 Financial Guidance

Tivity Health announced today its financial guidance for 2018, which includes:

  • Revenues in a range of $607 million to $625 million;
  • EBITDA in a range of $139 million to $144 million; and
  • Earnings per diluted share in a range of $2.12 to $2.20.

This guidance for 2018 also includes:

  • Depreciation expense of approximately $4 million;
  • Interest expense of approximately $8 million, of which approximately $6 million is non-cash expense;
  • An effective tax rate of approximately 27%;
  • Weighted average diluted shares outstanding in a range of 43.5 to 44.0 million;
  • Free cash flow in excess of $100 million; and
  • Capital expenditures of approximately $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 9891381, 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 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 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 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 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 community 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 15.6 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
 

 
  December 31,
2017
    December 31,
2016
 
Current assets:            
Cash and cash equivalents   $ 28,440     $ 1,602  
Accounts receivable, net     55,113       50,424  
Prepaid expenses     3,444       3,409  
Other current assets     2,180       2,250  
Cash convertible notes hedges, current     134,079        
Income taxes receivable     39       426  
Total current assets     223,295       58,111  
                 
Property and equipment:                
Leasehold improvements     10,384       10,144  
Computer equipment and related software     19,508       23,024  
Furniture and office equipment     8,194       8,670  
Capital projects in process     1,105       2,079  
      39,191       43,917  
Less accumulated depreciation     (28,533 )     (35,586 )
      10,658       8,331  
                 
Other assets     13,315       6,688  
Cash convertible notes hedges, long-term           48,361  
Long-term deferred tax asset     25,166       59,562  
Intangible assets, net     29,049       29,049  
Goodwill, net     334,680       334,680  
Total assets   $ 636,163     $ 544,782  
                 


 
TIVITY HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
    December 31,
2017
    December 31,
2016
 
Current liabilities:            
Accounts payable   $ 26,804     $ 26,029  
Accrued salaries and benefits     15,018       18,686  
Accrued liabilities     33,527       33,623  
Other current liabilities     984       397  
Cash conversion derivative, current     134,079        
Current portion of long-term debt     145,959       46,046  
Current portion of long-term liabilities     2,262       7,582  
Total current liabilities     358,633       132,363  
                 
Long-term debt           164,297  
Cash conversion derivative, long-term           48,361  
Other long-term liabilities     5,577       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, 39,729,580 and 38,933,580 shares outstanding, respectively     40       39  
Additional paid-in capital     349,243       341,270  
Accumulated deficit     (49,148 )     (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     271,953       189,298  
Total liabilities and stockholders' equity   $ 636,163     $ 544,782  
                 


 
TIVITY HEALTH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except earnings (loss) per share data)
(Unaudited)
 
  Three Months Ended   Twelve Months Ended  
  December 31,   December 31,  
  2017     2016   2017   2016  
                       
Revenues $ 139,354     $ 124,933   $ 556,942   $ 500,998  
Cost of services (exclusive of depreciation and amortization of $788, $(1,080), $2,802 and $3,468, respectively, included below)   99,596       87,709     395,605     357,120  
Selling, general & administrative expenses   9,985       9,553     34,361     39,478  
Depreciation and amortization   931       (1,267 )   3,357     4,085  
Restructuring and related charges   2,554       3,763     3,223     4,933  
                           
Operating income   26,288       25,175     120,396     95,382  
Interest expense   3,445       4,203     15,613     17,318  
                           
Income before income taxes   22,843       20,972     104,783     78,064  
Income tax expense   14,219       8,847     43,553     21,973  
                           
Income from continuing operations   8,624       12,125     61,230     56,091  
Income (loss) from discontinued operations, net of income tax   (141     (5,225 )   2,485     (184,706 )
Net income (loss)    8,483       6,900     63,715     (128,615 )
Less: net income attributable to non-controlling interest                 496  
Net income (loss) attributable to Tivity Health, Inc. $ 8,483     $ 6,900   $ 63,715   $ (129,111 )
                           
Earnings (loss) per share attributable to
  Tivity Health, Inc. - basic:
                         
  Continuing operations $ 0.22     $ 0.31   $ 1.56   $ 1.52  
  Discontinued operations $ (0.00 )   $ (0.14 ) $ 0.06   $ (5.01 )
  Net income (loss) (1) $ 0.21     $ 0.18   $ 1.62   $ (3.49 )
                           
Earnings (loss) per share attributable to
  Tivity Health, Inc. - diluted:
                         
  Continuing operations $ 0.20     $ 0.30   $ 1.44   $ 1.47  
  Discontinued operations $ (0.00 )   (0.13 ) $ 0.06   (4.86 )
  Net income (loss) $ 0.20     0.17   $ 1.50   (3.39 )
                           
Comprehensive income (loss) $ 8,483     $ 5,533   $ 68,217   $ (128,878 )
                           
Weighted average common shares                          
 and equivalents:                          
  Basic   39,662       38,661     39,357     36,999  
  Diluted   43,426       39,793     42,547     38,075  
                           
(1) Figures may not add due to rounding.                          
                           

 

 
TIVITY HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
    Year Ended December 31,  
    2017     2016    
Cash flows from operating activities:              
Net income from continuing operations    $ 61,230      $ 56,091    
Net income (loss) from discontinued operations     2,485       (184,706 )  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                  
Depreciation and amortization     3,357       31,292    
Amortization of deferred loan costs     2,887       2,209    
Amortization of debt discount     8,001       7,564    
Share-based employee compensation expense     6,658       17,538    
Loss on sale of MeYou Health           5,325    
(Gain) loss on sale of TPHS business     (4,733 )     192,034    
Loss on release of cumulative translation adjustment     3,044          
Equity in income from joint ventures           (271  
Deferred income taxes     40,935       (75,942 )  
(Increase) decrease in accounts receivable, net     (3,939     8,330    
Decrease in other current assets     820       2,819    
Decrease in accounts payable     (407     (3,376  
Decrease in accrued salaries and benefits     (6,061     (1,056  
Decrease in other current liabilities     (6,436     (4,825  
Other     (2,565     (7,425  
Net cash flows provided by operating activities    $ 105,276      $ 45,601    
                   
Cash flows from investing activities:                  
Acquisition of property and equipment    $ (5,910 )    $ (14,474 )  
Investment in joint ventures           (1,298 )  
Proceeds from sale of MeYou Health           5,156    
Payments related to sale of TPHS business           (27,469 )  
Other           (787 )  
Net cash flows used in investing activities    $ (5,910 )    $ (38,872 )  
                   
Cash flows from financing activities:                  
Proceeds from issuance of long-term debt    $ 373,450      $ 515,666    
Payments of long-term debt     (449,084 )     (527,115 )  
Payments related to tax withholding for share-based compensation     (4,481     (7,699  
Exercise of stock options     5,722       10,002    
Deferred loan costs     (2,452 )     (424 )  
Change in cash overdraft and other     2,533       2,834    
Net cash flows used in financing activities    $ (74,312 )    $ (6,736 )  
                   
Effect of exchange rate changes on cash    $ 1,784      $ (261 )  
                   
Less: net decrease in discontinued operations cash and cash equivalents    $      $ (1,637 )  
                   
Net increase in cash and cash equivalents    $ 26,838      $ 1,369    
                   
Cash and cash equivalents, beginning of period     1,602       233    
                   
Cash and cash equivalents, end of period   $ 28,440      $ 1,602    
                   

 

 
TIVITY HEALTH, INC.
RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(Unaudited)
 
Reconciliation of Adjusted EBITDA from Continuing Operations, Non-GAAP Basis
to Income from Continuing Operations, GAAP Basis
(In thousands)
 
      Three Months Ended
December 31, 2017
      Three Months Ended
December 31, 2016
   
  Adjusted EBITDA from continuing operations, non-GAAP basis (1)   $ 29,773     $ 29,148    
  Business separation costs (2)           (1,477 )  
  Restructuring charges (3)     (2,554 )     (3,763 )  
  EBITDA from continuing operations, non-GAAP basis (4)   $ 27,219     $ 23,908    
  Depreciation and amortization     (931 )     1,267    
  Interest expense     (3,445 )     (4,203 )  
  Income tax expense     (14,219 )     (8,847 )  
  Income from continuing operations, GAAP basis   $ 8,624     $ 12,125    

(1) Adjusted EBITDA from continuing operations is a non-GAAP financial measure.  The Company excludes business separation costs 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 EBITDA from continuing operations in isolation or as a substitute for income from continuing operations determined in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

(2) Business separation costs consists of pre-tax charges of $1,477,000 for the three months ended December 31, 2016 related to the separation of the Network Solutions business from the disposed total population health services (“TPHS”) business. 

(3) Restructuring charges consists of pre-tax charges of $2,554,000 for the three months ended December 31, 2017 related to a restructuring to streamline our operations support and $3,763,000 for the three months ended December 31, 2016 associated with the 2016 restructuring of corporate support infrastructure. 

(4) 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 income from continuing operations determined in accordance with U.S. GAAP.

 

 
Reconciliation of Adjusted Income from Continuing Operations 
Per Share (“EPS”), Non-GAAP Basis to EPS, GAAP Basis
 
  Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
  2017    2016     2017     2016  
Adjusted EPS, non-GAAP basis (5) $ 0.41     $ 0.35     $ 1.68     $ 1.55  
EPS (loss) attributable to income tax expense related to tax reform (6)   (0.17 )           (0.17 )      
EPS attributable to depreciation adjustment (7)         0.03             0.03  
EPS (loss) attributable to business separation costs (8)         (0.02 )     (0.02 )     (0.03 )
EPS (loss) attributable to restructuring charges (9)   (0.04 )     (0.06 )     (0.05 )     (0.08 )
EPS, GAAP basis $ 0.20     $ 0.30     $ 1.44     $ 1.47  

(5) Adjusted EPS is a non-GAAP financial measure.  The Company excludes EPS (loss) attributable to income tax expense related to tax reform, a depreciation adjustment, business separation costs, 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 U.S. GAAP.

(6) EPS (loss) attributable to income tax expense related to tax reform is due to the implementation of the Tax Cuts and Job Act of 2017, which resulted in incremental tax expense of $7,442,000 during the three and twelve months ended December 31, 2017 related to both the re-measurement of our deferred tax assets to the lower tax rate and the requirement to recalculate the impact of repatriation of our foreign earnings, which occurred earlier in the year.

(7) EPS attributable to depreciation adjustment consists of a pre-tax adjustment of $2,174,000 for the three and twelve months ended December 31, 2016 related to an adjustment in the depreciation expense allocated between continuing and discontinued operations based on having completed our asset separation analysis during the fourth quarter of 2016.  The tax rate applied to this expense was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.  

(8) EPS (loss) attributable to business separation costs consists of pre-tax charges of $1,477,000 and $2,189,000 for the three and twelve months ended December 31, 2016, respectively, and $1,639,000 for the twelve months ended December 31, 2017.  These costs related to the separation of the Network Solutions business from the disposed TPHS business.  The tax rate applied to these costs was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate. 

(9) EPS (loss) attributable to restructuring charges consists of pre-tax charges of $3,763,000 and $4,933,000 for the three and twelve months ended December 31, 2016, respectively, and $2,554,000 and $3,223,000 for the three and twelve months ended December 31, 2017, respectively.  The charges of $2,554,000 related to a restructuring to streamline our operations support during the fourth quarter of 2017, while all remaining restructuring charges disclosed in the table were associated with a restructuring of corporate support infrastructure that began in 2016 and was completed during the first quarter of 2017.  The tax rate applied to these restructuring charges was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate.

 

 
Reconciliation of Adjusted Income from Continuing Operations, Non-GAAP Basis to
Income from Continuing Operations, GAAP Basis (in thousands)
 
 
    Three Months Ended
December 31, 2017
    Three Months Ended
December 31, 2016
 
Adjusted income from continuing operations, non-GAAP basis (10)  $ 17,610    $ 13,979  
Net loss attributable to income tax expense related to tax reform (11)   (7,442 )    
Net income attributable to depreciation adjustment (12)       1,314  
Net loss attributable to business separation costs (13)       (893 )
Net loss attributable to restructuring charges (14)   (1,544 )   (2,275 )
Income from continuing operations, GAAP basis $ 8,624   $ 12,125  
             

(10) Adjusted income from continuing operations is a non-GAAP financial measure.  The Company excludes net income/loss attributable to income tax expense related to tax reform, a depreciation adjustment, business separation costs, 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 income from continuing operations in isolation or as a substitute for income from continuing operations determined in accordance with U.S. GAAP. 

(11) Net loss attributable to income tax expense related to tax reform is due to the implementation of the Tax Cuts and Job Act of 2017, which resulted in incremental tax expense of $7,442,000 during the three months ended December 31, 2017 related to both the re-measurement of our deferred tax assets to the lower tax rate and the requirement to recalculate the impact of repatriation of our foreign earnings, which occurred earlier in the year.

(12) Net income attributable to depreciation adjustment consists of a pre-tax adjustment of $2,174,000 for the three months ended December 31, 2016 related to an adjustment in the depreciation expense allocated between continuing and discontinued operations based on having completed our asset separation analysis during the fourth quarter of 2016.  The tax rate applied to this expense was 39.55%, which represented the combined estimated U.S. federal and state statutory tax.

(13) Net loss attributable to business separation costs consists of pre-tax charges of $1,477,000 for the three months ended December 31, 2016 related to the separation of the Network Solutions business from the disposed TPHS business.  The tax rate applied to these costs was 39.55%, which represented the combined estimated U.S. federal and state statutory tax rate. 

(14) Net loss attributable to restructuring charges consists of pre-tax charges of $2,554,000 during the three months ended December 31, 2017 associated with a restructuring begun and completed during the fourth quarter of 2017 to streamline our operations support and pre-tax charges of $3,763,000 during the three months ended December 31, 2016 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.

 

 
Reconciliation of Free Cash Flow, Non-GAAP Basis to
Net Cash Flows Provided By Operating Activities, GAAP Basis (in thousands)
 
 
 
 
      Three Months Ended
December 31, 2017
 
Free cash flow, non-GAAP basis (15)    $ 29,713  
Acquisition of property and equipment     1,936  
Net cash flows provided by operating activities, GAAP basis   $ 31,649  
         

(15) Free cash flow is a non-GAAP financial measure and is defined by the Company as net cash flows provided by operating activities less acquisition of property and equipment.  The Company believes free cash flow is a useful measure of performance and an indication of the strength of the Company and its ability to generate cash.  The Company believes it is useful to investors to provide disclosures of its results on the same basis as that used by management.  You should not consider free cash flow in isolation or as a substitute for net cash flows provided by operating activities determined in accordance with U.S. GAAP.

 

 
Reconciliation of EBITDA from Continuing Operations Guidance, Non-GAAP Basis
to Income from Continuing Operations Guidance, GAAP Basis
(In millions)
      Year Ending
December 31, 2018
 
  EBITDA from continuing operations guidance, non-GAAP basis (16) 139 - 144  
  Depreciation and amortization   (4 )
  Interest expense   (8 )
  Income tax expense   (34 - 36 )
  Income from continuing operations, GAAP basis 93 - 96  

(16) EBITDA from continuing operations guidance 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 guidance in isolation or as a substitute for income from continuing operations guidance determined in accordance with U.S. GAAP.

Investor Relations Contact:
Bob East, Westwicke Partners
(443) 213-0502
bob.east@westwicke.com

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Tivity Health, Inc.