Tivity Health, Inc.

SilverSneakers proprietary digital programming reach by leveraging increasingly common smart devices, including our recent launch on connected TV with Roku. Now, with the SilverSneakers Go application, members can use their smartphones and tablets to register and attend all of our live virtual experiences. Research with our members indicates that these enhanced digital offerings are not a temporary fix to pandemic-driven isolation and are becoming a part of a new normal that members expect to persist as the pandemic fades over time. According to a recent SilverSneakers poll survey, almost 80% of respondents said they will continue using digital offerings in addition to the gym. This digital adoption is also opening new partnership opportunities with our health plan. As an example, we've been able to partner with Humana to pivot their popular neighborhood centers to a virtual engagement model, offering virtual programs for their members that would have otherwise not been able to occur. Collaborations such as these are a testament to the innovation of our team and the strong partnership we maintained with our clients through the pandemic to continue to deliver value and keep members engaged. A combination of physical locations and digital will be a permanent part of our offerings, allowing our members to use the benefit where they want, in gyms, at home, and in the community. From our recent research on Silver Sneakers member activity, we found that members expect to engage in non-gym community locations more often post-COVID. This insight is evident from the data we see as well. Our community-based Silver Sneakers fitness classes are growing by nearly 40% quarter over quarter. These classes not only represent important physical activity for our members, but also offer the social connections our members need. Community fitness continues to play a central role in SilverSneakers experiences. SilverSneakers Flex has been offered in non-traditional venues and communities for almost 10 years now. And we anticipate continued accelerated growth in this area because many of our SilverSneakers members expect to do their workouts in the community as opposed to in the gym as they had pre-pandemic. Our health plan clients remain highly supportive of our efforts to engage their members physically and virtually. They continue to leverage the SilverSneakers brand as a significant differentiator during the Medicare annual enrollment period. Our top clients are integrating SilverSneakers into their sales messaging, broker and agent training, commercials, and member materials as a key element of their 2021 benefits and are specifically highlighting our virtual offerings as exciting features for their beneficiaries to use during the pandemic. As an example, One of our larger helpline clients has included SilverSneakers references in five of its commercials plus distributed flyers. We concluded our selling season with the following highlight. Addition of over 350,000 new SilverSneakers lives for 2021, including new clients and market expansion within our existing clients, the new clients represented by both hybrid and PMPM revenue models. Expansion of our whole health living acupuncture and massage services with new and existing clients representing 250,000 additional members. And 2021 client renewals are 99% even in this challenging year. Just a reminder that SilverSneakers continues to have the tailwinds of the intrinsic growth of Medicare Advantage, with 10,000 Americans turning 65 each day. Add to that our own organic growth through signing new clients or market expansion. Turning to Prime, our comprehensive network increased this quarter to more than 12,700 partner locations. In the third quarter, Prime accounted for 23% of health care revenue. We ended the quarter with 227,000 paying Prime subscribers, down from 235,000 at the end of the second quarter. We are still adding new lives to Prime. Roughly 7,500 of the subscribers joined us in September. We are also engaging members through partnerships for digital expansion of our Prime program. During the pandemic, we were able to introduce live instructor-led virtual classes for Prime members as an alternative to gym locations that were unavailable. We also recently finalized a partnership with a leading health and wellness platform to add thousands of on-demand classes offered by hundreds of instructors. This partnership approach is a demonstration of how we intend to rapidly evolve the value of prime beyond the gym. I'll now turn the call over to Tommy to review the nutrition business. Tommy.

Thanks, Richard. Following up strong first and second quarters, we closed out another solid quarter for the nutrition business in Q3 with revenue up over 10%, and adjusted EBITDA up roughly 57% year-over-year. The Nutrisystem brand DTC continues to perform well, delivering revenue growth of approximately 20% in Q3 year-over-year with strong EBITDA contribution. Our revenue drivers and key KPIs continue to trend well. Nutrisystem DTC new customer starts have increased 21% year-over-year. We added nearly six days to length of stay year over year. Revenue per customer increased $70 year over year. Due to our ongoing shift to digital and solid execution by our marketing team, cost per order decreased year over year for the sixth straight month. These results are a testament to the focus and dedication to excellence of our great team. Like the last two quarters, new customer starts for Nutrisystem DTC were strong at a 21% year-over-year increase. That momentum continued in October. Consumers have discovered that we have great-tasting food with a great deal of variety and a program that is simple to use, and it works, and we deliver right to the door. In September, we announced the launch of our new Nutrisystem Partner Plan. Studies have indicated that dieting with a partner leads to greater success and helps people maintain their weight loss. We know that eating is a social event, and now we have a solution that allows partners to experience the journey together and hold each other accountable while enjoying great meal occasions. It's still early, but we are seeing good uptake on the partner plan, and it is yielding a meaningful increase in revenue per customer as well as length of stay. In the retail channel, our all-new Nutrisystem Body Select lineup has been well-received by our retail partners. Our new lineup includes new five-day weight loss kits, protein and probiotic shakes, plant-based Fuel Me Up snacks to help power you through the day, and nightcap snacks for a little evening indulgence that limits late-night sugar spikes. In conclusion, we're very pleased with another strong quarter for Nutrisystem. Our ongoing efforts around modernizing our brand, transforming our marketing, innovating around product, and a supportive customer experience ecosystem are all working together to generate continued momentum in our business. We believe this momentum will serve us well as we transition from Q4 into diet season. Now I'll turn the call over to Adam to review the financials. Adam? Thank you and good afternoon, everyone.

Tiffany's healthcare segment generated revenues of $95.5 million, a decrease of 40% from the same period in 2019. SilverSneakers revenue was approximately $69 million, down 45% compared to last year, as expected, due to fewer revenue-generating visits as a result of COVID-19. Similar to last quarter, SilverSneakers revenue profile during the third quarter of 2020 was substantially different from the same period last year. Revenue from per member per month fees represented 59% of our total SilverSneakers revenue compared to 33% in the same period last year. We ended the quarter with 16.6 million health plan members eligible for SilverSneakers. an increase of 9% over the same time in 2019. Total silver sneakers visits were 9.1 million during the third quarter of 2020, compared to 26.2 million during the third quarter of 2019, with average monthly participation decreasing during the quarter to 2.4% compared to 7.8% last year. Approximately 494,000 visits during Q3 were digital. The third quarter ended with 3.6 million enrolled SilverSneakers members. And now to Prime. We generated 21.7 million of revenue in Q3, a decrease of 29% from last year. We ended Q3 2020 with 227,000 paying Prime subscribers, compared to 342,000 subscribers at the end of Q3 last year. This subscriber decline accounted for the majority of the year-over-year revenue decline. We had approximately 2.3 million gym visits from Prime in Q3 this year, compared to 4.8 million last year. Moving on to Whole Health Living and other health care revenue. During Q3, we recognized $5 million in whole health living revenue, up 6% from Q3 last year. Our wisely well revenue during the third quarter was immaterial. As a summary for our healthcare division, COVID-19 and the related gym closures negatively affected our silver sneakers and prime revenue for the third quarter as we expected. As we discussed on the August call, The considerable drop in variable gym visit costs allowed for a strong flow-through of revenue to gross margin. Additionally, the healthcare division continued to benefit from earlier cost reduction initiatives. Therefore, this division ended Q3 with $41 million of adjusted EBITDA, a 4.6% increase over Q3 last year. Turning our attention to the Q3 results for the nutrition segment, total nutrition segment revenues came in at approximately $159 million, a 10.8% increase compared to the same quarter last year. Following strong performance all year, the Nutrisystem brand DTC business generated approximately $147 million in revenue, an increase of 20% compared to the prior year. This increase was driven by Nutrisystem new customer revenue of $95 million, which was up 30% year-over-year, coupled with an increase in reactivation revenue, which was up 6% at $53 million. Moving on, South Beach Diet revenue was $6.3 million, down 48% year-over-year, and QVC and retail contributed a combined $5.4 million in revenue, down 42% year-over-year. Third quarter nutrition adjusted EBITDA was $28 million, or 17% of segment revenues. This compares to $18 million, or 12% of segment revenues in the prior year period. This year-over-year increase was driven by a decrease in marketing, and general and administrative costs, both in dollars and as a percentage of segment revenues compared to last year. Turning to our Q3 balance sheet and cash flow, we ended the third quarter with cash on hand of $56 million. We ended Q3 with $975 million of term loan debt, and we prepaid $39.7 million of principal amortization during the third quarter. Our next quarterly amortization payment is not due until March of 2022. We ended the quarter with a maintenance covenant ratio of 3.81 times, well below the maximum ratio of 5.75 times as calculated under our credit agreement. Our free cash flow for Q3 was strong at $31 million, reflecting the positive operational performance of both divisions partially offset by working capital dynamics. Year to date, we have produced free cash flow of $152 million. As Richard mentioned, we expect the transaction with Kainos to close before the end of the fourth quarter. We will use a significant majority of the net proceeds of the transaction to pay down our Term Loan A and Term Loan B in proportion to their outstanding balances. as required by our credit agreement. Following the close of the transaction, we estimate a trailing 12-month covenant ratio of no more than 2.8 times at year end, as calculated under our credit facility. During the third quarter, we recorded a non-cash impairment charge to Nutrisystem Goodwill of approximately $66 million, which reflects the difference between our carrying costs and estimated net proceeds from the transaction with KNOs. This impairment charge will not have any impact on current or future operations, nor affect our liquidity, cash flows from operations, or compliance with the financial covenants set forth in our agreement. Based on the healthcare segment's revenue and adjusted EBITDA performance through the third quarter of 2020, and the outlook for the remainder of 2020, we are providing guidance for annual 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 some pressure in our prime revenue coupled with an increase in utilization costs for both prime and whole health living as compared to the third quarter. We remain focused on managing the business with financial discipline and completing the nutrition segment divestiture. And we also look forward to investing in our healthcare business for 2021 and beyond. I'll now turn the call back over to Richard. Richard. Thank you, Adam. I'd like to thank our dedicated colleagues for their efforts and for the results this quarter. We are pleased with our performance, and I am particularly excited about the possibilities around our strategic initiatives and plans to organize our teams to deliver growth. The Nutrisystem transaction is a good outcome for Tiviti Health and its stakeholders. As mentioned, It will allow us to focus on our core healthcare business and build value for shareholders. We will now open the call to your questions. Operator?