Tivity Health, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Tiviti Health Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ryan Wagers, Chief Accounting Officer. Thank you. Please go ahead, sir.

Good afternoon and welcome to the activity health fourth quarter 2020 financial results conference call. Before we begin, if you do not already have a copy, the fourth quarter earnings release, supplemental information, and related 8K filed with the SEC are available on our website at activityhealth.com. I would also like to highlight that our financial presentation within today's press release and supplemental materials are reflective of the divestiture of the nutrition segment. Therefore, all results of operations and balance sheet data related to that business are now reported within discontinued operations. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated in accordance with GAAP in today's news release, which is also posted on the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding activity health, expected quarterly and annual operating and financial performance for 2021 and beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in activity health filings with the Securities and Exchange Commission in today's news release. and consequentially, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. And now, I'll turn the call over to the company's president and CEO, Richard Ashworth.

Good afternoon, and thank you, Ryan. Thank you all for joining the call today to discuss Tiviti Health's fourth quarter earnings results. Joining me on the call is Adam Holland, our CFO. Tommy Lewis, our COO, will join us during Q&A. I want to start by thanking all our Tiviti Health colleagues whose dedication, discipline, and focus continue to drive results for our clients, members, and shareholders. Looking back on 2020, I am proud of our colleagues and how they responded to an unprecedented pandemic. We were able to successfully improve the financial health of the company and our fitness business quickly adapted to the changing needs of our members and clients by launching a new and dynamic suite of virtual offerings. We believe these digital offerings not only allow our current homebound members to stay active and connected with the help of SilverSneakers, they will be a critical contributor to our new digitally enabled member engagement platform going forward, which we refer to as the SilverSneakers Connect Strategy. As you saw in today's press release, we exceeded our guidance expectations for 2020 with $438 million in revenue and adjusted EBITDA from continuing operations of $148 million. Our strong balance sheet with net debt of $366 million coupled with strong operational performance brought our leverage ratio below 2.4 times at year end. To increase our financial runway and save on interest, we paid down an additional $45 million of principal in late January, making our next amortization payment not due until December of 2022. We are very pleased with our healthy financial profile to start 2021. SilverSneakers generated 10.1 million visits in Q4, a sequential increase of 12% from the third quarter. Our virtual visits helped drive this growth as we had over 800,000 virtual visits in Q4, up 63% from Q3. Demand for our virtual offering continues to accelerate, and we've recently increased our number of weekend classes and bolstered our roster of instructors to keep up with growth. The success of the virtual offering is not only represented in the total number of visits, but also in the number of newly engaged SilverSneakers members. Typically, 18% of our in-person gym participants are newly enrolled, meaning they had not previously participated in SilverSneakers. In our new virtual offering, over 36% of participants are newly enrolled. We are engaging eligible members more effectively. These enhanced digital offerings are not a temporary response to pandemic-driven isolation. They are becoming a part of the new normal. We engage with our members, and they tell us they want digital offerings offered in the context of our trusted SilverSneakers brand. According to a recent SilverSneakers Pulse survey, almost 80% of respondents said they will continue using digital offerings in addition to the gym once the pandemic fades. We are leading the market in providing a uniquely robust, high-quality, omnichannel experience for our members. I think it's important to highlight the strength of our brand. Our health plan clients remain highly supportive of our efforts to engage their members physically and virtually because they know our brand resonates strongly with their eligible population and is an important part of their new member acquisition and member retention. During the Medicare Advantage annual enrollment period, they leveraged the SilverSneakers brand as a significant differentiator. Several of our top clients incorporated the SilverSneakers brand into their sales messaging and broker and agent training. Their commercials and member materials specifically highlighted our virtual offerings as a key differentiator of their 2021 benefits and a valuable feature for their beneficiaries to use during the pandemic. The combination of physical locations and digital solutions will be a permanent part of our offerings, supporting our members across settings, in gyms, at home, and in the community. While I am excited about our ability to grow the business through digital means, our gym network and our partnering locations will continue to be a foundation of our core fitness pillar. Throughout 2020, our dedicated network team was able to maintain the largest national senior fitness network in the country. We ended the year with over 16,000 participating locations and only a 1% reduction from a year ago. This is a testament to our deep relationships within the gym industry, as well as the flexibility of our business model, which allows us to add locations quickly and ensure we offer the best possible SilverSneakers member experience. Additionally, we were able to extend the terms of several key gym contracts during 2020, which positions us well for the omnichannel future. Turning to Prime, our network ended 2020 with more than 12,600 partner locations. In the fourth quarter, Prime accounted for 21% of revenue. We ended the quarter with 218,000 paying Prime subscribers, as expected. As Adam will discuss later, 2021 is expected to be a rebuilding year for Prime. Our commercial insurance and large employer relationships are healthy, and our gym network is robust and durable. We will first focus on stabilizing the subscriber base, then pivot to growth while employing new digital features for Prime. There is tremendous opportunity for further subscriber penetration, and I am confident we will build this business to be even better than before. As I look forward to the year ahead of us, we now have the financial flexibility to deliver on our strategy, thanks in part to the successful sale of Nutrisystems and significant reduction in our debt, the focusing of our healthcare business into a streamlined organization primed for growth, and our unrelenting drive for delivering strong operating results. Tiviti is poised for growth and will continue to deliver differentiated value to clients, members, and shareholders. We have started the transformation from being a fitness and gym access company into a leading member-focused platform engagement company with omnichannel capabilities. We will engage members through our trusted 30-year SilverSneakers brand and do so beyond physical fitness, utilizing new tools, new data, and new experiences. We will offer a broad assortment of solutions, fitness and other important areas of health and wellness. These solutions are highly curated to members' individual needs. Fundamentally, Tivoli will be a member-centric company that is evolving to meet member needs in the new normal, leveraging our market-leading brand as well as digital and in-person asset capabilities and expertise. As you will see in today's supplemental deck, our 2021 strategic priorities include modernizing our engagement platform, accelerating our core fitness programs, expanding our digital transformation, growing our whole health living network, and piloting new offerings through additional network partners. The backbone of our SilverSneakers Connect strategy will be the engagement platform, enabling us to develop a personalized, data-driven set of experiences for our members customized to their interests, needs, and goals, all in a way that maximizes value for our clients and benefits for our members. As our platform learns and engages the member, we will be able to drive utilization and engagement and extend our value proposition beyond the gym. Our individual member engagement platform will be supported by a sophisticated technology backbone and data analytics capability. We are implementing Snowflake, a well-regarded cloud-based data platform solution, and partnering with Redpoint, a leading omnichannel personalization firm, to help us deliver the right member experiences at the right time. We are confident the engagement platform will accelerate and amplify every part of our strategy. For example, our additional network strategy, which I will cover in more detail in a moment, could support many of the 22 traditional and expanded supplemental benefits offered under Medicare Advantage. The opportunity to aggregate fragmented networks is more meaningful when offered through an engagement platform as more members will be made aware of the benefits and those benefits will be easier to access and utilize. The engagement platform will also be a means to diversify revenue beyond our current fitness and gym access offering. A good example is an upcoming new product offering that will allow members to connect socially through the platform over shared interests, either virtually or in person. Our analysis shows that this type of connection reduces loneliness and social isolation among our participating population. Members will be able to see friendly faces, meet new people, share in conversation, connection, and laughter. We will move decisively and select the right engagement platform to have in place by the middle of this year. This will likely require investment both organic and inorganic. We have already vetted several opportunities and will continue to refine our selection. We do not expect it will meaningfully move our leverage ratio profile, which we plan to maintain below 3.0 times going forward. Our objective with the core fitness strategic pillar is to drive member activation and engagement in fitness while introducing new programs to expand our reach. An important part of this strategy is to improve engagement rates by offering alternatives in physical fitness, such as community-based fitness. As we mentioned last quarter, we found that members expect to engage in non-gym community locations more often post-COVID. This insight is evident from our own survey data and our growth in FlexLog virtual programs. SilverSneakers Flex has been offered in non-traditional venues and communities for almost 10 years now, and we anticipated continued accelerated growth in this area because many of our members expect to do their workouts in the community in addition to in the gym as they had pre-pandemic. Additionally, we expect to continue to invest in and grow our live virtual fitness offerings. Our members have responded enthusiastically to SilverSneakers Live and FlexLive. Not only has this proven to be an excellent new member acquisition vehicle, but it also increases utilization and engagement. Many members will not go to a gym but really enjoy being able to work out in the comfort and privacy of their home. At the same time, when the loyal gym goers want a diversion from the gym due to bad weather, scheduling constraints, or other factors, virtual is a convenient and easy option. Taken together, this positions Tiviti well for an omnichannel new normal where we continue to have the leading brand in senior fitness. Our digital transformation pillar is the expansion of our offerings to attract new members and extend the activity of enrolled members. Fundamentally, we believe introducing non-fitness digital offerings will attract a broader and more diverse set of new silver sneaker enrollees. Using the engagement platform and AI tools, we'll offer new condition-specific programs and services that will cater to members' unique health and wellness needs and interests. Potential member engagement opportunities include virtual personal training, interest-based social connection opportunities, mental enrichment, and personalized member content. Within the Whole Health Living, we are re-gentrifying our platform and expanding the solutions and services offered. This will allow us to pursue additional eligible lives and revenue. We will ensure our investments align with the highest growth areas, focusing on benefits and utilization management for acupuncture and massage therapy. This is a business we understand well. It is experiencing growing demand resulting from the opioid epidemic and Medicare national coverage determination changes as payers and providers seek to provide non-pharmacologic alternatives to pain management. The final pillar of our strategy is to pilot new offerings via new networks. Our ability to form cohesive networks in highly fragmented industries allows us to branch out and bring scale to payers in areas where it is challenging to do so. Examples include in-home services, nutrition offerings, and physical therapy, among others. We're looking for the right network partners with the right capabilities and member experiences. Our capital allocation approach will likely mirror that to the engagement platform that I mentioned and include some level of prudent and disciplined strategic investment. To be clear, any external investment would likely be bolt-ons and not transformative opportunities. In conclusion... The fundamentals of our business are strong. As more individuals age into Medicare, the demand for high-quality engagement will only increase. Our 2021 guidance reflects growth in revenue and adjusted EBITDA, and our balance sheet affords us the financial flexibility needed to accelerate our growth. I'm confident that our strong financial foundation and the investments we have made and will continue to make will drive diversified and sustainable growth. I'll now turn the call over to Adam.