This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Ladies and gentlemen, hello and welcome to the Tivity Health fourth quarter and full year 2021 earnings conference call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, Matt Milanovic, Vice President of Investor Relations to begin. Matt, please go ahead when you're ready.
spk05: Good afternoon and welcome to the Tivity Health fourth quarter and full-year 2021 financial results conference call. Before we begin, if you do not already have a copy, the earnings release, supplemental information, and related 8K filed with the SEC are available on our website at tivityhealth.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 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 2022 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 SEC and in today's news release. And consequently, 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.
spk06: Thanks, Matt. Thank you for joining the call today to discuss Tiviti Health's fourth quarter and full year 2021 earnings results. Joining me are Adam Holland, our CFO, Tommy Lewis, our COO, and Matt Milanovich, our VP of IR. I want to start by thanking all of our Tiviti Health colleagues for their perseverance, discipline, and focus that delivered excellent results during another difficult year. Our business has continuously adapted to the changing needs of our members and clients through expanded in-person and virtual offerings. SilverSneakers members love our platform, and now they will be able to engage with us in new ways with the recent launch of our mental enrichment and social connection solutions. Now on to 2021's results. As you saw in today's press release, our performance in 2021 was characterized by strong results with revenue and adjusted EBITDA exceeding our expectations as we raised financial guidance multiple times throughout the year. We reported full-year revenues of $481.3 million and adjusted EBITDA from continuing operations of $158.1 million. Additionally, SilverSneakers finished 2021 with a record-high 17.9 million eligible lives. We are very pleased with our 2021 financial and operational results and even more excited about what is coming in 2022. Total silver sneakers visits were 61.9 million in 2021, an increase of 30% from 2020. While we experienced some headwinds from the Omicron variant during the fourth quarter, our recent trends have strengthened through early February as the effects of Omicron are subsiding. And we continue to expect that in-person visits will increase in 2022. Further solidifying our confidence in 2022, adults over 65 continue to have the highest immunization rates in the nation, with almost 89% being fully vaccinated, and our SilverSneakers pulse surveys indicate that a significant percentage of members have returned or intend to return to the gym. SilverSneakers virtual visits grew to nearly 3.5 million in 2021, approximately doubling from 2020, driven by the outstanding experience of our proprietary programming designed by 13 national trainers. During the year, nearly half of the participants in our Live with Instructor virtual classes had never participated in SilverSneakers before, demonstrating that our proprietary virtual channel continues to be an efficient activation one. The combination of physical and digital fitness remains core to our strategy because it allows our members to use the benefit where they want, in the gym, at home, or in the community. Looking ahead to 2022, we expect growth in virtual engagement to be accelerated by the addition of social engagement and mental enrichment solutions, in addition to our virtual fitness programming. Our fitness network remains healthy and growing as we ended the fourth quarter of 2021 with approximately 16,000 SilverSneakers locations. Beginning in 2022, we significantly increased the size of our SilverSneakers network by adding new customizable fitness brands for our clients, bringing our total size to approximately 23,000 locations, making today's network the largest in company history. That is more than a 40% increase since the end of 2021. We're encouraged by the continued interest from gyms to be partners in the SilverSneakers network. On average, our national network offers members an access to a location within 3.6 miles of their home and 1.6 miles in urban and suburban markets. Network renewal rates remain high and consistent with our historical trends, and we continue to move some partners to longer-term contracts, providing both visibility and stability for the future. Moving on to Prime, we ended the fourth quarter with approximately 12,500 partner locations, similar to where we began the year, and 223,000 active Prime subscribers. The pandemic continues to have an impact on our business since COVID restrictions are a key driver of membership cancellations. However, new member acquisition is delivering as expected. We anticipate getting back to modest growth as the pandemic subsides and employee health becomes top of mind for employers who offer the Prime benefits. Next, I want to provide an update on our SilverSneakers health plan relationships. We closed the 2021 renewal year strong with a high 90s retention rate, and we retained our fair share of switching that occurred among our client base. We also had a strong selling season for 2022, bringing our new plans consistent with prior years. We began 2022 with more eligible lives than we ended in 21. We expect age ends and the addition of a large group plan by one of our clients this spring will continue to add growth in eligible lives. We played an important role with our clients during the Medicare annual enrollment period. Our teams facilitated nearly 400 events and trained close to 12,000 brokers across the United States. Our clients love the SilverSneakers brand for both its ability to improve the health of members, as well as to be a tool for recruiting, retention, and engagement. As a testament to the value we deliver to our clients, healthcare costs are 16% lower for our enrolled members And we have the highest NPS score in company history at 83. We have a 96% number of satisfaction score in addition. SilverSneakers is a supremely attractive recruitment, retention, and engagement tool for our clients. Now moving on to strategy, we continue our evolution to offer more virtual solutions for seniors to connect and improve their health while providing a more seamless and personalized SilverSneakers experience. Last month, we launched our mental enrichment and social connection programs designed specifically for older adults. Research supports that in addition to physical activity, social connection and improved brain health make seniors healthier and happier. Our members and clients give us permission to offer more solutions to address the social determinants of health. Additionally, in 2021, we launched a new data platform architecture, which we expect will enable us to better understand where our members are in their fitness and health journey and offer recommendations for the next best action, whether that be in-person or virtual. As the year progresses, I look forward to updating you on our progress. We are a market leader with a core business that is strong and growing. The tailwinds of Medicare Advantage and the aging population support strong growth through 2030. We have long-term contracts with our health plans and consistently strong renewal rates. Our members tell us they want more digital in addition to our in-person offerings, which we now deliver through our mental enrichment and social connection solutions. Our balance sheet and cash flow are strong and stable. Our business model is asset light. We delivered on our 2021 strategic plan by building an engagement platform and expanding our digital first offerings. Our financial guidance for 2022 calls for growth in revenue, adjusted EBITDA, and free cash flow. We are incredibly excited for what lies ahead in 2022. I'll now turn the call over to Adam.
spk04: Thank you, Richard. Now into the fourth quarter results. Revenues for the fourth quarter were $126.8 million, an increase of 26% from the same period in 2020. SilverSneakers revenue was approximately $96 million, a 30% increase compared to last year due to more revenue-generating visits. As expected, revenue from per-member, per-month fees represented 44% of our total SilverSneakers revenue compared to 58% in the same period last year. We ended the quarter and the year with 17.9 million health plan members eligible for SilverSneakers, an increase of 7% over 2020. Total SilverSneakers visits were 17.1 million during the fourth quarter of 2021 compared to 10.1 million last year. With our Q4 average participation increasing to 4.2% compared to 2.6% last year, And simply put, we are pleased with continued positive momentum in our visits. Within the 17.1 million visits, approximately 646,000 were virtual instructor-led visits. Additionally, over 72% of these virtual visits were in our SilverSneakers live format, which is led by our own national instructors in a larger interactive format. which we believe is going to be comprised the majority of our virtual fitness visits in 2022. And now on to Prime. We generated $24.1 million of revenue in Q4, an increase of 12% from last year. We ended 2021 with 223,000 paying Prime subscribers compared to 218,000 subscribers at the end of 2020. This subscriber increase, coupled with a slightly higher average rate, accounted for the majority of the year-over-year revenue increase. As expected, we had approximately 3.2 million gym visits from Prime in Q4 of 2021, compared to 2.5 million in the prior year. For Whole Health Living, during Q4, we recognized 6.2 million in revenue. Our fourth quarter marketing expense was $2.5 million to drive momentum for our critical fitness season. And as Richard mentioned, while still early in 2022, we are very pleased with our recent visit activity in SilverSneakers Live and believe that Q4 marketing contributed to these positive trends. We generated adjusted EBITDA of $34.9 million for Q4. And for the year, we generated $158.1 million of adjusted EBITDA at the higher end of our November guidance. Regarding our ShareCare equity position, we continue to hold 11.1 million shares of ShareCare common stock, which are valued on our balance sheet using a mark-to-market methodology. During Q4 of 2021, we adjusted the fair value of our equity position in ShareCare to its closing stock price as of December 31st. This adjustment resulted in a non-cash unrealized loss of approximately $41 million for the fourth quarter and for the entire year resulted in a non-cash unrealized gain of approximately $39 million. Turning to our year-end balance sheet and cash flow, we ended the year with cash on hand of $60 million and term loan debt of $381 million with a leverage ratio of 1.94 times as calculated under our credit agreement. In October of 2021, we prepaid $5 million of principal amortization, which makes our next required quarterly payment due in March of 2023. During the fourth quarter, we also repurchased 30,000 shares of Tivoli stock under our previously announced share repurchase program. Now turning to our 2022 guidance. We highlighted our 2022 guidance in our earnings release and supplemental materials this afternoon. Total revenues are anticipated to range between 540 and 580 million dollars. We expect adjusted EBITDA to range between 161 and 166 million dollars. Our assumptions for SilverSneakers performance during 2022 are as follows. Total SilverSneakers revenue is expected to represent approximately 78% of total revenue. We expect to end 2022 approaching 18.5 million eligible SilverSneakers members. Our eligible membership count began 2022 on plan and is expected to increase each month with normal age ends. Additionally, our guidance includes a planned and meaningful increase in eligible lives in late spring from one of our top clients with their addition of a large group plan. Approximately 80% of our SilverSneakers eligible lives are expected to be under a hybrid-type contract in 2022. For 2022, we forecast SilverSneakers total visits to range from 80 to 90 million, including approximately 5 million virtual visits. Regarding the shape of the year, we anticipate both revenue and visits will increase sequentially each quarter of 2022, boosted by more eligible members, an increased number of SilverSneakers members returning to the gym, and more members utilizing our expanded digital offerings. As a result, more SilverSneakers revenue and visits in total are expected in the back half of 2022 versus the first half. Switching to our assumptions for Prime in 2022, Total prime fitness revenue is expected to represent 17% of total revenues. This guidance projects a flat to modest increase in our average annual subscriber count. We expect annual prime visits to range from 13 to 15 million. Turning to whole health living, total whole health living revenue is expected to represent approximately 5% of total revenues in 2022. Total company gross margin as a percent of revenues is projected to be lower in 2022 than 2021 due to more expected silver sneakers and prime in-person visits. Regarding the cadence of the year, we anticipate gross margin percent for Q1 of 2022 will be slightly below Q4 of 2021's level and then decrease modestly each quarter for the remainder of the year. We anticipate ending 2022 with a gross margin percent still above our pre-pandemic levels. Regarding other components of guidance, we anticipate 2022 marketing expense to range between 1.6 and 2% of total revenues. Our planned allocation of the marketing investment is expected to be heavier in Q1 and Q4 of 2022 to capitalize on our members' return to the gym. In addition, in Q4, we want to support our clients' AEP efforts with marketing. SG&A is projected to be lower year-over-year in both dollars and as a percent of revenues due to strong operational control and a recategorization of certain expenses in 2022 from SG&A into cost of sales, which totals approximately $4 million in 2021. We project SG&A to range between 5.9 and 6.5% of total revenues for 2022. 2022 adjusted EBITDA dollars are expected to range from 161 million to 166 million. Adjusted EBITDA is projected to increase sequentially each quarter with over half of the annual adjusted EBITDA coming in the back half of 2022. This cadence also projects slightly lower total adjusted EBITDA dollars in the first half of 2022 as compared to 2021's first half. We anticipate free cash flow to increase to a range of $77 to $87 million, excluding any potential monetization of our position in ShareCare. And capital expenditures are estimated to range from $15 million to $20 million. Regarding our debt leverage ratio, we are comfortable operating at this current level, and we will continue to evaluate optional paydowns to ensure we are optimizing our capital structure. Additionally, we continually work with our board of directors to evaluate the best capital allocation options to ensure we deliver a maximized return for our shareholders, including our $100 million share repurchase authorization. I will now turn the call back over to the operator to open for Q&A.
spk00: If you would like to ask a question, please press star followed by one on your telephone keypad now. If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure your line is unmuted. Our first question comes from Jalandhra Singh from Credit Suisse. Your line is now open. Please go ahead.
spk01: Thank you, and thanks for taking my questions. First, Richard, a quick clarification on your comments around intra-quarter trends for silver sneakers in 4Q. So did you see visits going sequentially in October and November and then declining in December because of Omicron resulting in sequentially flat? And have visits fully recovered in more recent weeks back to like October, November levels? Just trying to understand that if there is still lingering impact of Omicron variant or we are back to pre-Omicron kind of a run rate.
spk06: Yeah, thanks, Jalinda. Good question. So the way, and Tommy, you can weigh in here as well. What I would start off with is that we saw a clear change in SilverSneakers members' behavior when Omicron came on to the picture after Thanksgiving, going into the December and even into the early January timelines. And then you see clear recovery behavior pre-Omicron, and we see clear recovery behavior, I would say now post-Omicron, but there's clearly a return What we're seeing in February, in early February, is encouraging to get to the ranges that we outlined for the full year. Tommy, anything you want to add?
spk02: Hey, Jalendra. The only thing I would add is that we are starting to see sentiment from seniors improving related to getting back to the gym as well as socializing in public, so we're optimistic about the trends and patterns.
spk01: Okay, and then... One more question I had around the prime fitness expectations. Clearly, I know there are some put and takes there. Not much growth expected in 22. Just trying to understand with some recent announcements around insurance companies, including fitness programs and solutions in their commercial insurance plans, like United Peloton is one example. And then just trying to understand how do you view the landscape for that business and the rational productivity for having that offering in place?
spk06: Yeah, I'll start, and then maybe, Adam, if you want to weigh in on that. I think the overall market sentiment for a program like Prime is positive, Jalinda, to your point. I think employers care deeply about their employee health, and as we're getting back into an environment where people are back in person and together at work and then also, of course, at the gym, I think this will be a tailwind for Prime. In terms of what we see for the whole year, You know, we're just going off kind of what we saw through the last year's pandemic and what we saw with some restraint from people engaging in the program due to the restrictions. Not all the restrictions have still been lifted yet across the country and different geographies are still having some challenges in terms of what they require for someone to go to to the gym, but Adam, anything you want to add?
spk04: Yeah, Jelander, you hit on an important point. We also see an increased demand for programs like Prime with large employers, and we feel like this is going to be a great solution for them. The guidance we have is a slight uptick on the highest side of subscriber count. We've actually seen acquisitions going really well, even through Omicron. The challenge has a little bit been on the termination side, And our belief is that that's really driven by what Richard just touched on, is that the month of December, early January, there's still a lot of restrictions out there. As those abate, hopefully we can start to see some improvement there. But for what we're seeing right now, this is why we reflected the guidance you saw today. But feel really good about it in the future of the business. Yep.
spk01: And one last one before I yield. Last quarter, you guys had noted that you plan to increase marketing spending, focus on digital and, of course, in-person visits. Did that plan spending play out as expected, or did you scale back on some spending because of COVID surge? And if some of that spending is now in 22 outlook, and were there specific channels you guys allocated more dollars than others? Any color that would be helpful. Thank you.
spk02: Hey, Zylinder, Tommy again. We did increase our investment in marketing in Q4 for a couple of reasons. One, to support our health plan clients for the annual enrollment process, and number two, to really start to build momentum going into the January busy season and put a lot of emphasis on digital for our SilverSneakers Live virtual offering, and that did pan out. We're seeing good performance so far in the quarter related to SilverSneakers Live. And, you know, 2022 does have a step up in total marketing expenses over 2021. And it's seniors are more comfortable getting back to the gym, getting back to their routines. We also have new solutions that we're offering in terms of mental enrichment and social engagement. And then we will reserve some for the back half related to AEP. And again, to rebuild that momentum and the cycle starts all over again.
spk01: All right, thanks, guys. Thanks, Jalindra. Yeah, thank you.
spk00: Our next question comes from Matthew Shay from Piper Sander. Your line is now open. Please go ahead.
spk07: Hey, thank you for the question. Wondering if you could comment on the payer space and demand for supplemental benefits. I know Humana recently mentioned the benefits of additional services and margin improvement from using services specifically outside of the health plan. Wondering how you can leverage silver sneakers to help these payers achieve their margin goals in an increasingly competitive environment.
spk06: Yeah, so Matthew, thank you. Great question. I think overall it's very bullish. Probably seen some of the strongest discussions that we've had with our health plan partners in a long time. And I think they're all finding value in a lot of the different supplemental benefit providers and their ability to drive engagement with the population through different needs. And SilverSneakers is really a great brand to be able to do that. Not only its 30-year history, but also the difference it makes in the lives of the members, but also its retention and its acquisition support. And so what I see is an environment that has a stronger appetite for the inclusion of supplemental benefits and helping members have more choices in the ways that they can engage in healthier behavior or support in their healthcare, depending on what type of supplemental benefit you're talking about. So we're encouraged with what we're hearing. I believe that supplemental benefits will continue to be a draw in the marketplace as it continues to show substantial benefit to the members. And then to your point, I believe that is a margin opportunity for plans. So as they can engage, get their members to engage in healthier behavior, they'll be a lower cost burden over time. So, yeah, I'm kind of where you are. I think it's a really strong environmental factor.
spk07: Got it. That's helpful. And then I know in the past you've referenced the Avalere study on the outcomes that silver sneakers can drive. Curious how much of an impact that has had on communicating this value proposition to the health plans and assuming that that outcome data didn't include a lot of the virtual visits and mental and social enrichment deployments. Is there potential that those outcome data could skew higher as those programs take hold and increasingly raise your value proposition to the payers?
spk06: Yeah, I appreciate the question. And the short answer is yes. I think that there's still upside in the different types of engagement that the SilverSneakers brand has the ability to elicit. Historically, it has been primarily focused on physical activity and a sense of community, which are very powerful drivers for people to engage in healthier behavior, to live longer, and to be lower cost. And the Avalare study was a great example of a propensity-matched study, putting like-for-like people together and studying them over time, and then coming back and saying, yes, SilverSneakers members who also have chronic diseases, who also maybe struggle with weight or have other conditions, just like the traditional Medicare population does, but they do engage in healthier behavior. And then when we look at their cost profile, it's better. Now that we're driving social and mental enrichment and engagement as well, I believe that that will also be a tailwind for our benefit in that cost reduction. Some of our plans, you know, all of our plans care about this, of course. And we work in good faith with the plans, too. You know, they have a lot of data and information on their members, of course. And so, you know, we'll continue to drive this point home that SilverSneakers members can help the overall cost profile. Overall, I think it's been very well received. And we'll continue to look at that as we get more digital engagement, too. We'll get more people to engage in healthier behavior. Therefore, the impact should be wider and more disparate.
spk07: Got it. Thank you, guys. Thanks.
spk01: Good question.
spk00: As another reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Ryan Daniels from William Blair. Your line is now open. Please proceed with your question.
spk03: Hey, guys. Nick Speakout on for Ryan. Thanks for taking my questions. I guess just to kind of continue on the competition in the MA space theme, we've seen a couple of the larger kind of legacy payers cite a bit of churn as a result of that. I'm wondering what kind of, wondering how those dynamics have been shaking out for you guys considering, you know, your relationships with Humana, et cetera, on that front.
spk06: Yeah, it's a good question, Nick. And I'll ask Tommy to weigh in after I make my comments. I think, you know, we work hard every day to make sure that our value proposition for our plans remain strong and we don't rest. You know, there are good competitors out in the marketplace. We respect them very much and we work really hard to to continue to drive home the value for our plans. With the plans that we have, we have fantastic long-tenured, high 90% renewal rates, the long-tenured retention. And there's a lot of work that happens in partnership with the plans. It's not just a contract and then you have a renewal. There's a lot that goes in between that in terms of market activation and co-marketing during AEP and working together to try and get members to activate in healthier ways. behavior. So I think there's a strong demand for supplemental benefits, back to the previous question. I think we have a gold standard, a long-tenured offering, but we don't rest on that. Tom, anything you want to add in the client space at the moment?
spk02: Yeah. Hey, Nick, in any given year, you're going to see some switching among the various Medicare Advantage plans. We have a relatively high market share, and so oftentimes when there's switching, it's just from one of our one of our other plans, but we're a great acquisition and retention vehicle for the MA plans. They value the SilverSneakers benefit, they value the brand, and they appreciate our strategic direction. So we're pleased about how things shaped out for us this season.
spk03: Thanks. I appreciate that color. And then I guess next, you've mentioned in the past that you've made quite a bit of investments in your data platform. which enables you to target market folks who may have, you know, came off the platform or left SilverSneakers for a while. Just wondering, you know, what kind of success you're seeing on that front, bringing folks, you know, back to SilverSneakers after, you know, maybe they dipped off during Omicron or something like that.
spk06: Yeah, so great question. And so, Richard, so The first thing I would say is that the digital channel is proving to be a very efficient one at getting members who inordinately were not activated or enrolled in the program but eligible. And so the threshold for them to get engaged in the brand has been easier through the digital channel. On the investments in our data infrastructure and our omni-channel deployment, we're doing many use cases now to see different ways to drive people to behavior change. Right. Someone who maybe has never gone to the gym. We try them a very different way than someone who went a few times and we haven't seen for a while. We talked to them differently. And so we're using that personalization engine in many use cases in the moment. And what we're seeing so far is a lot of learnings and some good results and being able to get people to do something different than what they were doing post our intervention. And we do that intervention through mail, through phone, through SMS, through many different different ways. But I would say that the primary weapon, if you will, so far has proven to be digital and our virtual class offerings. They're highly rated. People are enjoying them. And we're not seeing as much crossover. So we're seeing just a lot of net new to brand, which is fantastic. So we're not seeing some cannibalization of the physical to digital. We did see once the Delta variant kind of went away and pre-Omicron, we did see our Flex Live kind of go back into physical for sure. But our Silver Sneakers Live, kind of our national program, that's continued to be strong.
spk03: Great. Thanks, guys. Thank you.
spk00: That concludes our Q&A session for today. Thank you for joining. You may now disconnect your lines.
Disclaimer