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Tivity Health Delivers Strong Results For Third Quarter 2020

11/05/20
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., Nov. 5, 2020 /PRNewswire/ -- 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."

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

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

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 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 or other qualified employees and to control labor costs; the risks associated with changes to traditional office-centered business processes and/or conducting operations out of the office in a work-from-home or remote model during adverse situations (e.g., during a crisis, disaster, or pandemic), which may negatively impact productivity and cause other disruptions to the Company's business; the effectiveness of the reorganization of the Company's business and the Company's ability to realize the anticipated benefits; the Company's ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed its resources; the impact of legal proceedings involving the Company and/or its subsidiaries, products, or services, including any claims related to intellectual property rights; the Company's ability to enforce its intellectual property rights; the risks associated with deriving a significant concentration of revenues from a limited number of the Company's Healthcare segment customers, many of whom are health plans; the Company's ability and/or the ability of its Healthcare segment customers to enroll participants and to accurately forecast their level of enrollment and participation in the Company's programs in a manner and within the timeframe anticipated by the Company; the Company's ability to sign, renew and/or maintain contracts with its Healthcare segment customers and/or the Company's fitness partner locations under existing terms or to restructure these contracts on terms that would not have a material negative impact on the Company's results of operations; the ability of the Company's Healthcare segment health plan customers to maintain the number of covered lives enrolled in those health plans during the terms of the Company's agreements; the Company's ability to add and/or retain paid subscribers in its Prime Fitness program; the impact of severe or adverse weather conditions, the current COVID-19 pandemic, and the potential emergence of additional health pandemics or infectious disease outbreaks on member participation in the Company's Healthcare segment programs; the impact of healthcare reform on the Company's business; the effectiveness of the Company's marketing and advertising programs; loss of, or disruption in the business of, any of the Company's food suppliers or the Company's fulfillment provider, or disruptions in the shipping of the Company's food products for its Nutrition segment; the impact of claims that the Company's Nutrition segment personnel are unqualified to provide proper weight loss advice; the impact of health- or advertising-related claims by the Company's Nutrition segment customers; competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; loss of any of the Company's Nutrition segment third-party retailer agreements and any obligations associated with such loss, or a reduction of orders for Company products by any such third-party retailers or reduced promotion by such third-party retailers of Company products; the Company's ability to continue to develop innovative weight loss programs and enhance its existing programs, or the failure of the Company's programs to continue to appeal to the market; the impact of claims from the Company's Nutrition segment competitors regarding advertising or other marketing practices; the Company's ability to develop and commercially introduce new products and services; the Company's ability to receive referrals from existing Nutrition segment customers, a decline in which could adversely impact the Company's customer acquisition costs; failure to attract spokespersons or negative publicity with respect to any of the Company's spokespersons; the Company's ability to anticipate change and respond to emerging trends for customer preferences and the impact of the same on demand for the Company's services and products; the seasonality of the business of the Company's Nutrition segment, particularly with respect to diet season; negative publicity with respect to the weight loss industry; the impact of increased governmental regulation on the Company's Nutrition segment; a significant portion of the Company's Nutrition segment revenue depends on the Company's ability to sustain subscriptions of its Nutrition segment's programs, and cancellations could impact the Company's future operating results; claims arising from the sale of ingested products; and other risks detailed in the Company's filings with the Securities and Exchange Commission.

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

 

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)


 

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.

 

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


 

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


 

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

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)



$

31,106



$

28,788


$

151,687


 Acquisition of property and equipment




2,903




6,436



13,265


Net cash flows provided by operations, GAAP
basis



$

34,009



$

35,224


$

164,952















(8)

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. Additionally, because free cash flow 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.

 

Reconciliation of Adjusted Earnings Per Share ("EPS"), Non-GAAP Basis

to EPS (Loss), GAAP Basis (footnote amounts in thousands)





Three Months

Ended

September 30,

2020



Three Months

Ended

September  30,

2019



Adjusted EPS, non-GAAP basis (9)


$

0.72


$

0.46



   Net loss attributable to acquisition, integration, project, CEO
transition, and restructuring costs (10) (17)



(0.09)



(0.09)



   Net loss attributable to transaction-related costs (11) (17)



(0.04)





   Net loss attributable to impairment loss (12) (17)



(1.36)





   Net loss attributable to COVID-19 costs (13) (17)



(0.01)





   Net loss attributable to amortization of intangible assets (14) (17)



(0.11)



(0.07)



   Loss attributable to tax adjustments (15) (17)





(0.01)



EPS (loss), GAAP basis (16) (17)


$

(0.87)


$

0.29












(9)

Adjusted EPS is a non-GAAP financial measure.  The Company excludes net loss attributable to acquisition, integration, project, CEO transition, restructuring costs, transaction-related costs, impairment loss, COVID-19 costs, amortization of intangible assets, and tax adjustments from this measure because of its comparability to the Company's historical operating results.  The Company has updated its definition of Adjusted EPS to exclude net loss attributable to transaction-related costs and net loss attributable to impairment loss incurred during the third quarter of 2020. The Company considers transaction-related costs and net loss attributable to impairment loss to be outside the performance of its ongoing core business operations and believes that presenting Adjusted EPS excluding such items provides increased transparency as to the operating costs of its current business performance. The Company did not revise the prior period's Adjusted EPS 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 EPS in isolation or as a substitute for EPS determined in accordance with U.S. GAAP.  Additionally, because adjusted EPS may be defined differently by other companies in the Company's industry, the non-GAAP financial measures presented here may not be comparable to similarly titled measures of other companies.

(10)

 Net loss attributable to acquisition, integration, project, CEO transition, and restructuring costs consists of pre-tax charges of $5,612 and $5,540 for the three months ended September 30, 2020 and 2019, respectively.  These costs primarily related to the acquisition and integration of Nutrisystem and other strategic projects, the termination of our former CEO in February 2020 and hiring of our new CEO in June 2020, and restructuring activities as described in Note 5 above.  The tax rate applied to these charges was 25%, which represented the combined estimated U.S. federal and state statutory tax rate.

(11)

Net loss attributable to transaction-related costs consists 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. The tax rate applied to these charges was 25%, which represented the combined estimated U.S. federal and state statutory tax rate.

(12)

 Net loss attributable to impairment loss consists of pre-tax charges of $66,198 for the three months ended September 30, 2020 related to impairment of goodwill allocated to the Nutrition segment. No tax benefit is recorded for these charges.

(13)

Net loss attributable to COVID-19 costs consists 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, including increased labor rates and additional shipping and related charges.  The tax rate applied to these charges was 25%, which represented the combined estimated U.S. federal and state statutory tax rate.

(14)

Net loss attributable to amortization of intangible assets consists of pre-tax charges of $7,092 and $4,579 for the three months ended September 30, 2020 and 2019, respectively, related to the amortization of certain definite-lived intangible assets recorded as part of the acquisition of Nutrisystem. The tax rate applied to these expenses was 25%, which represented the combined estimated U.S. federal and state statutory tax rate.

(15)

Loss attributable to tax adjustments represents the estimated impact on the Company's effective tax rate for the three months ended September 30, 2019 arising from certain nondeductible expenses related to the acquisition of Nutrisystem.

(16)

Figures may not add due to rounding.

(17)

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

 

Reconciliation of Net Debt, Non-GAAP Basis

to Total Debt, GAAP Basis (in thousands)






September 30,

2020




June  30,

2020



 

Change



September  30,

2019

Net debt, non-GAAP basis (18)



$

918,318



$

952,048


$

33,730


$

1,028,206

 Cash and cash equivalents




56,440




60,274






6,857

Total debt, GAAP basis



$

974,758



$

1,012,322





$

1,035,063
















(18)

Net debt is a non-GAAP financial measure.  The Company excludes cash and cash equivalents from this measure and discloses net debt because it is consistent with the calculation of the Company's net leverage ratio covenant under its credit agreement.  The Company believes it is useful to investors to provide disclosures of its financial position on the same basis as that used by management.  You should not consider net debt in isolation or as a substitute for total debt determined in accordance with U.S. GAAP.  Additionally, because net debt may be defined differently by other companies in the Company's industry, the non-GAAP financial measures presented here may not be comparable to similarly titled measures of other companies. 

 

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SOURCE Tivity Health

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