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Edited Transcript of TVTY earnings conference call or presentation 7-Aug-19 9:00pm GMT

Q2 2019 Tivity Health Inc Earnings Call

FRANKLIN Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Tivity Health Inc earnings conference call or presentation Wednesday, August 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam C. Holland

Tivity Health, Inc. - CFO

* Dawn M. Zier

Tivity Health, Inc. - President, COO & Director

* Donato J. Tramuto

Tivity Health, Inc. - CEO & Director

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Conference Call Participants

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* Alex Joseph Fuhrman

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* David Anthony Styblo

Jefferies LLC, Research Division - Equity Analyst

* David Samuel MacDonald

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Michael John Petusky

Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst

* Mohan A. Naidu

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Nicholas Charles Spiekhout

William Blair & Company L.L.C., Research Division - Associate

* Sean William Wieland

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Steven Paul Halper

Cantor Fitzgerald & Co., Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Tivity Health Second Quarter 2019 Financial Results Conference Call. Today's call is being recorded and will be available for replay beginning today and through August 14, 2019, by dialing (800) 585-8367. The replay passcode is 9579725. The replay may also be accessed for the next 12 months on the company's website. (Operator Instructions)

To the extent that any non-GAAP financial measures are discussed on today's call, you will be able to find a reconciliation of the measure to the most directly comparable financial measure calculated in accordance with GAAP on 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 Tivity Health's expected quarterly and annual operating and financial performance for 2019 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 Tivity Health's filings with the Securities and Exchange Commission 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 would like to turn the call over to the company's Chief Executive Officer, Mr. Donato Tramuto. You may begin, sir.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [2]

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Welcome, and thank you to everyone who has joined the call today. I have with me Dawn Zier, Tivity Health's President and Chief Operating Officer and former CEO of Nutrisystem; Adam Holland, our CFO; as well as Tommy Lewis, our Investor Relations and integration initiatives who will be available during this -- during the question-and-answer session following our prepared remarks.

Before we provide an update on our progress, I want to take this moment to remember Chip Wochomurka, who passed away last week after battling brain cancer for the last 18 months. Those of us who worked closely with him knew Chip as a dedicated professional whose commitment to the success of this company was unwavering. He will be missed, and his contributions will be everlasting, and we send our warm thoughts and condolences to his wife, Jane, and their 3 sons.

I will begin today with an overview of our enterprise level results and then discuss the Healthcare business unit. Don will provide an update on the Nutrition business unit. Adam will cover the financials as well as our outlook. But first, allow me a moment to highlight the core strengths of the company. Our business clearly aligns with the needs of our health plan customers, SilverSneakers members. And where policymakers are directing the future of health care, namely to address the social determinants of health, there are now scores of articles and numerous policy decisions that have been already enacted and rapidly moving health plans and providers to recognize the importance of addressing the underlying issues of health, such as lack of transportation, food insecurity, loneliness and inactivity, all variables that when addressed earlier in the health care cycle can have significant reduction in cost and improvement in quality.

Medicare Advantage membership is growing in popularity because it's been shown to keep costs lower for patients while providing members with additional benefits that they value. It is also being expanded with more innovation to address well care and not sick care, integrating solutions to address these very opportunities to keep people healthier.

With regard to social determinants of health, Medicare Advantage beneficiaries are increasingly likely to be affected by socioeconomic and demographic factors, stressing the importance of plans providing nonmedical benefits targeted for these high-cost, high-need patients.

In early April of 2019, CMS finalized a rule giving Medicare Advantage plans regulatory flexibility to provide benefits directed at addressing social determinants of health, such as buying fresh produce, providing food for beneficiaries with cardiovascular conditions. We believe that Tivity Health will be successful in this area because of our experience and capable leadership team. And we are one of the few companies addressing at scale a bundled social determinants of health package, coupled with a stable cohort of nearly 70 health plan customers with relationships that are unmatched in the industry.

Our growth in the health business unit is rebounding. And we are implementing new and creative ideas in the Nutrition business unit that will leverage our health plan and fitness partnership relationships. Our balance sheet is strong. And our robust free cash flow is allowing us to pay down our debt ahead of schedule. Additionally, our cost synergies are on track, and our revenue synergies are beginning to take shape.

We continue to make progress with both our operational and sales initiatives to leverage both our national fitness center network and health plan partners as new distribution channels for the nutrition business. The Healthcare business unit is also capitalizing on the synergies from the media expertise of Nutrisystem and their customer contact center, which we consolidated during the last quarter. We believe, as evidenced by the success of our first quarter media campaign, that those last 2 synergistic benefits of the acquisition will be indispensable to the continued growth in SilverSneakers eligible lives, enrolled members and increased visits. We're just 5 months out from the closing of our Nutrisystem acquisition. We are fiercely executing on our plan to leverage the assets of these 2 businesses to drive significant long-term shareholder value.

And with that, I'd like to focus on a few key highlights, specific to our second quarter results, which include: first, increased strong momentum in our Healthcare business; secondly, early success in revenue synergies; and thirdly, optimization and expansion of our Nutrition business.

To the first point, we are experiencing increased momentum in our Healthcare business. And therefore, I'm pleased to share with you that we are raising our 2019 revenue guidance for the Healthcare business unit. Additionally and now that our selling season is over, our preliminary 2020 projections for revenue growth in the Healthcare business for 2020 are somewhere between the high-single to low-double digits driven by growth both in SilverSneakers and Prime.

Additionally, I'm also pleased to share that we expect our total eligible lives will grow to between 16 million and 16.5 million eligibles as well as an additional growth of new eligibles for Prime by over 1 million as a result of a new Medicare supplemental plan, and this is all for 2020. It's important to emphasize that the success we are experiencing today in the Healthcare business was not by chance, it was by design. It was a direct result of the careful reengineering and transformation plan that we launched in 2016. Back then, we identified several key issues causing lag in the Healthcare business. And then, we uncovered opportunities to correct those issues and position the business for growth. As a result, we're seeing the reacceleration of this business that we knew was possible. For example, the reengineering of the sales organization back in 2016 has unquestionably delivered the following year-to-date results. First, the successful 2019 selling season has generated more than 600,000 new lives for SilverSneakers going into 2020. These new lives came from both new health plan customers adding a fitness benefit to their covered benefits as well as from the welcome return of past clients. These gains in new lives, coupled with the organic growth in Medicare Advantage, will, we believe, increase our eligibility of SilverSneakers lives by nearly 8% in 2020 over 2019.

Second, our launch of the intense customer and member-first mindset back in 2016 prompted a change in the organization. And as such, we have forged stronger relationships with 3 of our core stakeholders: our fitness center partners; our health plan customers; and yes, our SilverSneakers members In the last 3 years, I have personally met with the top leadership of our largest health plan customers, fitness center partners as well as thousands of our SilverSneakers members.

In the process, we both rebuilt relationships with our core stakeholders as well as gained critical business insights that are the basis of our unique strategic position that we now enjoy today, addressing the social determinants of health of physical inactivity, social isolation and food insecurity. Our health plan customers and fitness center partners have validated these social determinants as essential to their continued success and relevance. In fact, 2 of our new 2019 customer wins involve a combination of SilverSneakers along with a nutritional component.

Additionally, Humana has been involved in a year-long pilot with Tivity Health related to loneliness and social isolation, recognizing that SilverSneakers also offers benefits from social connections along with its already well-known benefits from physical fitness. We continue to expand on that work and appreciate the partnership Humana has shown in addressing the problems of loneliness and social isolation by leveraging the strength of our SilverSneakers brand. In addition to loneliness and social isolation, we are now working with Humana to address another key social determinant of health, food insecurity. We look forward to sharing more about this in the near future. [Partnering] to address food insecurity is a reflection of our ability to adapt Nutrisystem's robust infrastructure to offer nutritional solutions that go beyond just weight loss.

Thirdly, our digital marketing efforts that we started back in 2017 are paying off. That, coupled with our expansion into television, a smart move by this company in January, has been one of the most significant catalysts driving SilverSneakers membership. And as a double win, we believe more Medicare eligibles are choosing Medicare Advantage plans that offer SilverSneakers as a result of learning about the iconic program through other national television campaign. And with a Net Promoter Score of 81, when current members hear about SilverSneakers through television, they are more apt to recommend to others to join the program.

I also know, from speaking to a number of our health plan executives, that the TV campaign was favorably received by them and drove further interest in the SilverSneakers brand. All in all, we experienced a lift in incremental enrollments and visits. Going forward, we are excited by the expanded possibilities of media driven in great part by our ability to now tap into the know-how and the experience of Nutrisystem, who has used television and digital advertising as an indispensable vehicle to how they reach consumers.

Fourth, the last 2 years of the Healthcare business have seen impressive retention success with customer contract renewals. In 2018, we renewed 97% of our customer contracts. This year, we are tracking to a 99% renewal rate. We also secured an early contract renewal with a large national Blue plan. In fact, it's a top 10 Medicare Advantage plan.

Fifth and with respect to UnitedHealth, as a positive update to our February call, we now anticipate that, going into 2020, about 20% to 25% of the individual lives we have in 2019 will be retained. And as a reminder, all of the group lives, which represent about 60% of the 2019 UnitedHealth business revenue, will continue in 2020. And I'm pleased to share with you that discussions to extend this business beyond 2020 thus far looks positive. More news as it develops.

Sixth, our Prime Fitness business also had a strong selling season, in which we signed 2 new commercial health plans. We also won one of the largest non-health plan Medicare supplement players. When I arrived in late 2015, we had roughly 136,000 Prime subscriptions. Today, I'm proud to say that we have more than doubled that figure to north of 334,000 subscriptions and growing.

As you can see, the Healthcare business has fiercely executed on the A-B-C-D strategy that we announced just 3 years ago in August of 2016. This executive team has unequivocally delivered, addressing the challenges head-on and putting the right strategic plan in place to overcome and position the business for future success. I am proud of the entire team and like to thank them and all the colleagues for their tenacious commitment and success in seeing our plan through.

Turning to the second key area of enterprise update for today's call. We have seen very encouraging early success in our revenue synergy opportunities, whereby we offer nutrition solutions to our managed-care clients. A major factor in the strategic rationale of combined Tivity Health and nutrition was the opportunity to cross-leverage our capabilities. We believe Tivity Health is now uniquely positioned to leverage the food science capabilities of Nutrisystem to expand beyond weight loss and offer broader nutrition-based solutions to seniors and to those with specific chronic conditions or food insecurities through our health plan, fitness partner relationships and our proprietary database of members.

During the second quarter, we signed 2 relatively small but full-blown non-pilot contracts to provide post-discharge meal deliveries for members facing food insecurity. One of these was a competitive win and the other was a new covered benefit being offered to health plan members. Incidentally, both customers are also new to SilverSneakers. In making these sales, we saw that our nutrition offering can drive increased adoption of SilverSneakers and vice versa.

In addition to those 2 new contracts, we are launching pilot programs with 2 of our large existing customers, one, a self-insured employer and the other a health plan, to identify and support their diabetic members in an effort to provide the health of their members and reduce cost. One of those new pilots is with Walmart. Just 6 months after signing a Prime relationship with Walmart, we are now expanding that partnership to include this new pilot with the goal of evaluating a specially designed nutrition program to improve the health of a group of associates with type 2 diabetes. In this pilot, we will provide Walmart associates that have diabetes with access to Nutrisystem D, which is designed specifically for those living with prediabetes and type 2 diabetes to help manage blood glucose levels and achieve and maintain a healthy weight. In the second pilot, we will work with Humana through their Bold Goal initiative and provide a combination of education, meal delivery and other resources to address food insecurity in a diabetic cohort which extends beyond the 65 and above age group.

And now for the third area of focus for our call today, the Nutrition business unit. As we all know, this industry plays in a very competitive direct-to-consumer market that is constantly experiencing a need for new and innovative ideas and programs that has served this business unit successfully in the past. To respond to the current environment, we are applying a two-pronged strategy to, first, optimize the core business, and secondly, expand the business to include new channels beyond direct-to-consumers by expanding reach beyond direct-to-consumers and working with our health plan partners and fitness partner locations. Additionally, we will leverage the food science capabilities beyond weight loss, so that we can address the broader opportunity of nutrition-based solutions and continue to differentiate ourselves in the marketplace.

Going forward, just like we did with the health business unit around the A-B-C-D, I'll refer to this approach in shorthand, as the OE strategy, focusing on optimizing the core with a focus, if you will, on expanding into additional strategic areas and channels. We are applying a strategic approach that is very similar to what we did in the Healthcare business unit, and we have high confidence that we can execute another successful transformation.

As part of this plan, in the next 2 quarters, we will make additional investments of approximately $3 million into channel expansion, marketing technology, product innovation and operational capabilities as well as to the menu and branding, all of which is contemplated in our revised guidance issued earlier today. An integrated approach to these investments will, we believe, strengthen our position in the upcoming diet season and beyond. We believe that, within the next 24 months, a meaningful percentage of the total Nutrition business unit revenue will come from partnerships originating from our Healthcare business unit, where leveraging our health plan relationships, member loyalty and fitness center partnerships will provide revenue streams that are not totally predicated on a direct TV channel.

And now I'll turn this call over to Dawn to provide more details around the Nutrition business unit. Dawn?

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [3]

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Thank you, Donato. I'd like to start off by addressing the Nutrisystem business results for the first half of the year. On our first quarter call in May, we shared that January and February program starts were down significantly. We worked hard, made several changes and were pleased with our results in March when program starts rebounded, coming in stronger than January and up double digits from the prior year at a comparable return on investment. April starts came in comparable to February on lower spend, which was also encouraging, but lagged a bit behind prior year, which was attributed to Easter timing. Based on all indicators, we believe that, for the remainder of the year, we will be able to exceed prior year new starts and forecasted as such.

However, while we continue to rebuild momentum and show month-over-month improvements as we progress through the second quarter, we fell short of being able to deliver the projected year-over-year growth with our current product at an acceptable ROI. Based on this, we have now revised our forecast down for the rest of the year and also are not meeting our top line expectations. It's important to note that the Nutrition business unit continues to generate meaningful EBITDA and free cash flow.

2019 has been a tough year, and we have assessed and are addressing head-on all the variants that impact our direct-to-consumer Nutrition business, including new competitive entrants, product innovation, [offer] channel expansion and optimization. While we have had major success on our digital expansion initiative and have improved revenue per new customer, expanded growth margins and reactivated more former customers than prior year, we fell short on the innovation front as our program failed to resonate as strongly as we expected and needed it to in the current competitive environment.

As you heard Donato mention, we're investing in several key areas that we believe will fuel a successful 2020 diet season. We are reinstating the handbook that we used from 2013 to 2017, where we drove 4 successful years of innovation that delivered double-digit revenue growth and are in the process of implementing a major program redesign for Nutrisystem set to launch this upcoming diet season. The dynamics of the marketplace have changed, and we have conducted extensive research, received significant consumer input and are implementing live testing and fully expect to reclaim our leadership position within the industry on the innovation front. We know the simplicity and ease of our Nutrisystem program drives results as demonstrated by the millions of people, men and women of all ages, that have tried Nutrisystem and have had success. We have decades of experience and believe our science-backed and clinically substantiated results distinguish us from those who are newer to the market and just don't have those assets.

In addition to product innovation, we're also investing in our AdTech and MarTech solutions and are conducting channel expansion tests beyond television and digital, which I will touch upon in a minute. We believe we have a strong plan in place for getting the business back on track and ready for the 2020 diet season. One of the many benefits of being part of a larger organization is the collective talent and resources that we now have in place to help address all aspects of our program as well as to develop new channels to augment our direct-to-consumer efforts. As outlined earlier, we're implementing our OE strategy, where we are O, optimizing the core business to support the 2020 diet season and return the core business to growth; and E, expanding the business to launch new revenue channels that will diversify us from being singularly dependent on the direct response advertising-based approach. It's our belief that the execution of this strategy will lead to stabilization, growth and reduced volatility for the Nutrition segment.

To add some color around the O or optimization component of our strategy, I'd like to elaborate on 4 key initiatives that we are focusing on and investing in to drive 2020 performance. The first is innovation. As I just spoke to, we will be introducing an all new program for Nutrisystem, along with some major innovations around the South Beach Diet as well. We believe that our focus on marrying consumer behavior and evidence-based solutions will allow us to lead the industry in offering new and breakthrough solution to the consumer. As you know, we don't disclose specifics at this time of the year due to the competitive nature of our business but we do look forward to sharing more on future calls.

Two, digital acceleration and media mix. Digital spend was up approximately 60% in the second quarter versus prior year, and we expect to double year-over-year digital spend for Nutrisystem in the third quarter. Our digital efforts has had an acceptable ROI that is allowing us to target new audiences that we do not reach through traditional television media. We see a lot of opportunity for continued growth here as we head into 2020. This has already resulted in our being able to radically shift our media mix towards digital, reducing our dependency on television. Today, more than 50% of our orders are coming to us through the web. That's not to say that TV won't remain an important part of our go-forward strategy because of the scale and broad reach it provides, it will.

As shared on prior calls, we have data that leads us to believe that we cut back too much on television in the first quarter, especially as other competitors jumped into the space. Additionally and as part of our diversification efforts, we're testing a brand-new marketing channel in the fall, outside of the television and digital channels, which we believe has promise. We will share more when we update you on our diet season plan.

Three, agency selection and creative. We're newly collaborating with 2 known and well-respected agencies to develop our 2020 diet season creative campaigns for the Nutrisystem and South Beach Diet brands. We'll be producing a large amount of television and digital video assets that we can use across our platforms. We will be expanding our social media and content strategy as we build off the wins from this year's influencer and content campaigns. And we will continue to drive engagement through our NuMi and South Beach apps, which close to 80% of our customers are actively using.

And four, technology, data-enabling technology. We're investing in AdTech and MarTech capabilities and the talent needed to support that having just launched our demand side and data management platforms, which allow us to do enhanced targeting and segmentation. We've also green lit funding for our customer data platform, targeted to be ready in Q1 2020, which will control, refine and optimize the customer journey. These investments in cutting-edge technology will further extend our long acknowledged analytic capabilities and we believe will leapfrog us ahead of the competition. We will also be leveraging this technology within our Healthcare business unit.

And now some color on the E or expansion part of our strategy, which we have telegraphed since day 1 of announcing the combination of these 2 companies, focusing on 2 key components and underscoring why the Tivity Health, Nutrisystem combination makes so much sense.

First, as Donato mentioned earlier, like capitalizing on our food science capabilities, we plan to differentiate ourselves from our competitors by focusing not just on weight loss but expanding into broader nutritional segments and providing much needed food solutions for those with food insecurity issues or chronic conditions. Health is the new wealth, and we embrace the notion that food is medicine. And two, we are the only company in the weight loss space that has customer relationships with 70 health plans, multiple employers, and 16,000-plus fitness center partners. No one else even comes close to the new scale and reach that we have as a result of Tivity acquiring Nutrisystem. We believe that these new and significant points of distribution will deliver predictable revenue streams and reduce overall dependency on advertising and promotion spend to drive growth. As a matter of fact, we believe that, over the next 2 years as we diversify and expand, a meaningful percentage of the total Nutrition business unit revenue will come from these sorts of partnerships, and we're excited about the pilots and rollouts already underway.

To close my commentary, while we are nowhere near satisfied with the financial results of the nutrition business so far in 2019, we are excited about our growth prospects as we look forward. We believe that the combination of science-backed food capabilities, marketing expertise, health care expertise and unparalleled reach set us apart from the rest. And we are confident that our OE strategy will enable us to take full advantage of our unique competitive position.

With that, I'll turn the call over to Adam, who will review the financials.

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Adam C. Holland, Tivity Health, Inc. - CFO [4]

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Thank you, Dawn, and good afternoon to everyone. Similar to last quarter, we provided supplemental financial information on the Investor Relations page of our website that we hope will aid you in understanding our Q2 results and updated 2019 guidance. Further, please note today's press release includes non-GAAP reconciliation tables with related explanations.

Turning now to our second quarter combined results. Total revenue for the second quarter of 2019 was $340.4 million, an increase of 124% over the same period last year. Net income was $18.1 million compared to income from continuing operations of $22.7 million in the second quarter of last year.

Adjusted net income in Q2 2019 was $31.2 million compared to $22.8 million in Q2 last year. Adjusted net income for the second quarter excludes certain pretax and post-tax items incurred in connection with the acquisition of Nutrisystem. Q2 GAAP earnings per diluted share was $0.37 with adjusted earnings per diluted share of $0.64. Adjusted EBITDA for the second quarter of 2019 was $70.3 million, and this amount includes the benefit of approximately $1.3 million of realized cost synergies during Q2.

Moving on to Healthcare. Our Healthcare segment continues to perform well. The segment generated second quarter revenues of $157.5 million, an increase of 3.7% over the same period in 2018. SilverSneakers revenue represented 78% of segment revenues or $122.9 million, slightly higher than SilverSneakers revenue in Q2 of 2018. It's important to note that this higher revenue came despite having 700,000 fewer eligible members this year. As Donato stated, we are very pleased with this outcome and believe it validates the revenue potential of the A-B-C-D strategy. Total SilverSneakers visits for Q2 of 2019 were 25.6 million, relatively flat compared to last year. Although, of those visits more generated revenue this year versus last year.

We ended the quarter with 14.9 million eligible SilverSneakers members with approximately 3.5 million enrolled and an 8% active monthly participation rate during Q2.

Prime Fitness accounted for 19% of total revenue or $29.8 million for the quarter, an increase of 18% over the same period last year. Prime's growth over Q2 of 2018 was primarily driven by a 15% net increase in subscribers, ending the quarter with over 334,000.

Our Healthcare segment's non-GAAP adjusted EBITDA for the second quarter totaled $35.7 million or 22.7% of segment revenues. This compares to $35.1 million or 23.1% of segment revenues for Q2 of last year. Note this amount includes approximately $300,000 in benefits from cost synergies.

There were 3 primary factors influencing Q2 Healthcare EBITDA. First, our year-over-year cost per visit has increased as described on last quarter's call. This put pressure on EBITDA. That said, we experienced some cost relief because the percentage of Q2 2019 visits from PMPM members was approximately 23.6% or 70 basis point less than Q1 of 2019. This sequential reduction of PMPM visits was beneficial to our Q2 EBITDA compared to Q1 because we experienced fewer non-revenue-generating visits.

Second, our WholeHealth Living business experienced a higher-than-expected acupuncture utilization rate, putting pressure on Q2 EBITDA as we operate this business primarily under a capitated arrangement. These 2 decreases to adjusted EBITDA margin were slightly offset by a year-over-year reduction in our Q2 2019 total marketing expense, which was $3.9 million in Q2 of '19.

Importantly, even with our planned lower marketing investment for the back half of the year, we expect continued strong performance in both SilverSneakers visits and Prime subscriptions for the remainder of 2019.

Turning now to the Nutrition segment. The second quarter revenues for the Nutrition segment came in at $182.9 million, a 4.4% decrease compared to the same quarter last year. This decline was primarily driven by a decrease in the DTC business, which generated $170.4 million in revenue, a 4.7% decrease from last year. Within DTC, Q2 revenues from customers in their initial diet cycle were down 11% year-over-year, primarily due to fewer new customer starts. Based on the trends we have seen in our second quarter and July, we have projected that the total 2019 new customer program starts will be down single digits versus prior year.

Q2 2019 reactivation revenue, which made up approximately 37% of our total DTC revenue, was up 8% year-over-year, helping offset some of the decline in new customer revenue. Based on these trends, we expect reactivation program starts and revenue to be up compared to last year.

We continue to see positive momentum in growing both our upsell and à la carte items, and we're also benefiting from gains in customer length of stay on the programs. Rounding our Q2 revenue for the Nutrition segment, QVC contributed $3.5 million in revenue, and revenue from the retail channel was $8.7 million. While the retail channel met our revenue expectations for Q2, we now anticipate a reduction in year-over-year revenue for the remainder of the year due to reduced orders from some of our retail customers.

Nutrition segment gross margin, as a percentage of revenue, showed improvement compared to last year by balancing promotional offers and optimizing supply chain costs, although marketing expense increased to $50.6 million in Q2 or 27.7% of segment revenues in the second quarter. As a result, our Q2 adjusted EBITDA for the Nutrition segment was $34.7 million or 19% of segment revenues, and this amount includes approximately $1 million in benefits from cost synergies.

Turning now to our balance sheet. In conjunction with the closing of the acquisition of Nutrisystem on March 8, we entered into a credit agreement that provided Tivity a senior secured term loan A and term loan B facility totaling $1.18 billion as well as a $125 million revolving facility.

I'm pleased to report that, as of today's call, we have repaid $90 million of that initial amounts borrowed under the term loan facilities. Because we are over a year head of our mandatory amortization schedule, we do not expect to pay down material amounts through the remainder of 2019. We expect to meet our objectives of achieving a leverage ratio of less than 3.5x by the end of 2020. In May of 2019, we entered into an interest rate swap agreement to manage our exposure to fluctuations in interest rates. As of June 30, 2019, these interest rates swap agreements had current notional amounts totaling $900 million.

Turning to our outlook for 2019. As noted in today's press release, we updated our February 2019 consolidated guidance in conjunction with updates to the outlook for our Healthcare and Nutrition segments. The Healthcare segment revenue guidance has been raised to a range of $625 million to $630 million driven by expected continued momentum in our SilverSneakers business, where we now expect a slight year-over-year growth rate, and stronger back half growth in Prime as we layer in Walmart's new business. We are narrowing our stand-alone adjusted EBITDA range to $140 million to $143 million as we expect our PMPM mix as well as a higher-than-anticipated claims utilization rate from our WholeHealth Living network, mentioned earlier, to continue to pose a challenge throughout the remainder of 2019.

The Nutrition segment revenue guidance, which includes projected results from March 8, 2019 through December 31, 2019, has been lowered to $502 million to $512 million driven by an anticipated reduction in DTC revenue from fewer program starts and lower retail revenue. Adjusted EBITDA for the March 8 through December 31 period has been lowered to a range of $80 million to $84 million reflecting the lowered revenue range and new investments to prepare for a successful 2020 diet season.

These combined segment adjustments resulted in the following consolidated guidance. First, as a reminder, the consolidated guidance reflects the Nutrition segment's results starting on March 8 and is not reflective of the full first quarter of 2019. We anticipate total revenue in the range of approximately $1.127 billion to $1.142 billion; non-GAAP adjusted EBITDA of approximately $229 million to $239 million, which includes our commitment to deliver cost synergy savings of $9 million to $12 million in 2019. This would equate to adjusted earnings per diluted share in the range of $2.14 to $2.32. Our guidance contemplates depreciation expense of $17 million; interest expense, including noncash interest, between $77 million to $79 million; a tax rate of approximately 29% for quarters 3 and quarter 4; and weighted average diluted shares of approximately 47 million for the full year. Free cash flow, including cash paid for interest, is expected to be approximately $55 million to $60 million reflecting capital expenditures of approximately $22 million to $24 million.

I'll now turn the call back over to Donato.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [5]

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Thank you, Adam and Dawn, and thank all of you for joining us to discuss our second quarter. In closing, let me summarize and leave you with these important points. First, the Healthcare business unit is exceeding our expectations, and we expect to enter into 2020 with high single-digit to low double-digit revenue growth, returning us back to where we were in previous years.

Second, our solid free cash flow supports our ability to continue to pay down debt aggressively on top of the $90 million we have already paid 1 year ahead of schedule.

Third, just 5 months after the closing of Nutrisystem, our revenue and cost synergy initiatives are on track according to plan and further momentum will occur as the year unwinds.

Fourth, the Nutrition division is a business unit that has had many years of success, and while it may have missed the innovation spark this year, the program works. The market is growing and it now benefits from the collective talent in this organization. The increase of new investments of approximately $3 million coupled with unparalleled access to the health plans and fitness and member networks will, we believe, afford that business with a successful diet season in 2020.

Lastly, and as we noted in our press release today, we are pleased to welcome to the Board a new member, Dan Tully from Altaris Capital Partners, a well-respected, long-term-oriented investment firm that focuses on the health care industry. Altaris is a significant Tivity Health shareholder who recognizes the value-creation opportunity of our strategy. And we look forward to Dan's contributions to the Board as we continue to execute on our plans.

And now before I turn it to the Q&A, I'd like to close by once again thanking all of our colleagues for their heroic efforts during our integration and the results that have come out of that integration thus far. Without them, quite honestly, our innovation and successes would not be possible.

Operator, I would like to now open the call for questions please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Steve Halper with Cantor Fitzgerald.

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Steven Paul Halper, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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So I just wanted to ask about the comment that you made with -- about Humana and you're working with them on food insecurity and there's more to come. So from your knowledge, right, did Humana create their 2020 MA plans with some sort of nutritional benefit in there as sort of a -- with a placeholder and perhaps that's the part to come? So if you could just expand on what you think Humana is doing around that component would be really helpful.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [3]

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Yes. And as I -- great question, Steve. And as I stated earlier, listen, the Medicare Advantage plans now and what CMS passed not only this year, in the years of previous, it's giving these plans regulatory flexibility. And you've got to take your hat off to Humana. With the Bold Goal initiative that they undertook a number of years ago, they are clearly ahead of the pack. And yes, to your question, they envision, and these pilots certainly will unveil the, what I call, true outcomes of lowering cost and improving, if you will, overall what they're calling healthy days. Humana looks at healthy days with these memberships. We know that, if you're 65 and older and you're living in rural America and you've identified yourself as being food insecure, the number of unhealthy days per month is about 26. So these are the areas that we will begin to measure. And quite honestly, we're not in the pilot business, we're in the revenue business. And the pilots, we have to prove and demonstrate their success and that will lead to, what I truly believe, contractual relationships with these plans.

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Steven Paul Halper, Cantor Fitzgerald & Co., Research Division - Analyst [4]

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Right. And do you think that's more of a 2021 plan year?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [5]

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Well, I'll tell you one thing. I'm 63; I don't have a long time to wait for this stuff. We will move very quickly. And those are the updates that we will provide to you. I could tell you, we have a great relationship with Humana. Humana wants to see us succeed. They have a great respect for the SilverSneakers brand. And it's in our hands to move fast, quick and demonstrate value, and stay tuned.

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Operator [6]

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Your next question comes from Alex Fuhrman with Craig-Hallum.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [7]

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Wanted to ask about the strong selling season for the SilverSneakers business. That's certainly encouraging to hear that you're projecting high single-digit to low double-digit growth. I guess as we head closer to 2020, what are some of the variables that are going to impact whether you come out of the high end of that or the low end of that? Is it primarily enrollment in the plans that you're partnered with? Is it visits to the gym in your PMPM or hybrid markets? Just curious what could cause results to be on the higher or lower end of that range.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [8]

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Well, I have a saying in the company and I'll use it on this line. Be like a carpenter, measure 3 times and cut once. And so listen, we don't have the eligibility files. We don't get those files until January. However, I do believe, based on the information -- we've given you a lot of information today that we normally have not provided this early. The fact that we have the news on United, the fact that we have now regained new clients, the fact that we have retained the current clients, all this really gives me confidence that we can inch towards that higher range. However, I would be absolutely foolish if I didn't say I need to wait until the eligibility files come in, and we'll get those, obviously, in January. And you're reading the same reports that we're reading. Many of the customers that we're doing business with are having good growth this year and that is another kind of a feather in our cap. But at this point, I think that we clearly see the line of sight toward that higher end.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [9]

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Okay. Great. That's really helpful. And then just turning gears to the Nutrition business. I mean it looks like the forecast for the back half of the year is lower than the first half of the year. Can you give us a sense of is that because of the some -- perhaps lower customers starts that you're seeing now? I think you also mentioned lower orders at retail. Is that having an impact as well?

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Adam C. Holland, Tivity Health, Inc. - CFO [10]

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Yes. This is Adam. You're right. The back half, it follows the typical cadence, I'd say, which you've seen in the last few years in terms of the revenue distribution throughout the year and does reflect what we said in the prepared comments regarding new customer starts.

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Operator [11]

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Your next question comes from Ryan Daniels with William Blair.

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Nicholas Charles Spiekhout, William Blair & Company L.L.C., Research Division - Associate [12]

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This is a Nick Spiekhout in for Ryan. Just to start off, there's been a couple studies on the cost savings for broader use of meal delivery. And just wondering if you think a couple of these -- there's a bipartisan policy center, sorry, that just came out recently that said, like, for every $1 you spend, you save $1.57 on meals. So just wondering if you think studies like that could motivate traditional fee-for-service Medicare to offer meal delivery and, I guess, how confident you are that you could see them doing that in the future.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [13]

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Well, it's a brilliant question. And quite honestly, it's not just with food, why not with SilverSneakers as well. And so we continue to see that as an opportunity. We do have a government staff that is working on that. And by the way, they're not just looking at that hard-core dollar. What they're looking at -- I gave you the information about number of healthy days. For every unhealthy day that a senior experiences, it's costing the health plan $16 in extra costs. So there are a variety of measures that we are looking at. But your question, it's a great one. It's not just Tivity that's moving that forward with CMS. I do know that many of the health plans have also tented up the idea, why not make this available across all membership.

So listen, it takes a long time to get these policies through Washington, but right now, we're very encouraged by the awareness of the social determinants of health. And Tivity has just, by coincidence, we've landed on a great sweet spot not just with physical inactivity but loneliness. A good portion of our members right now are going to the fitness centers not to bench press 150 pounds. They're going because they're lonely and hats off to the health plans who are saying we will count that as a gym visit.

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Nicholas Charles Spiekhout, William Blair & Company L.L.C., Research Division - Associate [14]

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Great. And I guess to follow-up, I know you guys mentioned 2 potential contracts for the post-discharge meals. And I'm just wondering kind of how your conversation has been going with the Medicare Advantage plans on that and, I guess. just further meal delivery for problem-wise, like for instance, those with diabetes and things like that. Like how have those discussions being going so far?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [15]

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They've been going very well and very encouraging. But as my great philosopher Yogi Berra once said, you don't want to make the wrong mistake. I am very, very happy that we signed these 2. They're not pilots, but it gives the 2 business units an opportunity to flush out. We will learn from these 2. It doesn't mean that we're not going to sign more. That's just not my style. But what a great opportunity, 3.5 months after we closed the deal with Nutrisystem that we actually signed these contracts. And so Dawn with her 2 Presidents will work very closely to understand what that offering has to be, what is the pricing, the packaging, all the other stuff that will allow us to scale this.

Remember, we have incredible relationships with these 70 health plans, and I don't think what people are understanding is that the media -- the fact that we're out there now advertising SilverSneakers, the members trust SilverSneakers. With a Net Promoter Score of 81, they trust us. I wanted to share with you a story. I think I shared this with you a number of months ago, but there was a gentleman that I had actually met, 88 years old, who came up to me and said, "I've been using Nutrisystem for the last 2 years." He said, "My wife has never been a great cook, and she will never be a good cook, and Nutrisystem brings food to the home." Well, his wife fell down about 3 weeks ago and broke her hip. His daughter wrote to me and said, "Thank you for Nutrisystem. It is what's keeping my father alive." And this is the type of opportunities we see with the health plans, not just with their members but the members that can pay for this program.

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Nicholas Charles Spiekhout, William Blair & Company L.L.C., Research Division - Associate [16]

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Yes, I remember you saying that. That was an interesting story.

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Operator [17]

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Your next question comes from David MacDonald of SunTrust.

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David Samuel MacDonald, SunTrust Robinson Humphrey, Inc., Research Division - MD [18]

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Donato, just a quick question. Just to come back to the bundled sales, I'm curious, this selling season, when you're going to some of your MA plan partners, are you offering both a contract A, if you want to sign up for just SilverSneakers and also offering a potential bundled sale that would include senior fitness, nutrition, social isolation, et cetera. How should we think about that, if not this selling season, on a go-forward basis? And then I just had one follow-up.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [19]

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Yes. David, actually, a great question. So I don't think -- listen, you go to one plan, you've seen one plan. And I think it varies. First of all, some of the wins that we had, while the health plans may not have tapped into nutrition, I could tell you unequivocally, one of the big wins that we had back, which represents more than 50% of the lives that we now have, they're -- [Cielle] basically said to me, your company is different than any other company that's out there. While we may not do nutrition right now because we're now offering the SilverSneakers program, what we like about what you have a right now is this garden-variety of services.

So when the salesperson goes in there, they do assess and evaluate, first, what the needs are relative to loneliness and physical activity go very well together. And then they begin to tear it apart and they're representing, if you will, the Nutrition business unit. And it's from there where the discussions can lend itself to the post-discharge or lend itself to the chronic care areas. And so like I said, one size does not fit all. It's really looking at -- and that's the benefit of having 25 years of experience with the health sector that we have. And Dawn was correct in her comments, there is no other nutrition business unit out there that has those kinds of relationships.

And so I am very optimistic that our future will look at the Nutrition division as a seller of those goods. The Health division will sell it and they will buy it from the Nutrition business unit.

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David Samuel MacDonald, SunTrust Robinson Humphrey, Inc., Research Division - MD [20]

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And then you mentioned a growing percentage of Nutrition revenue coming from nontraditional diet revenues on a go-forward basis. Can you talk about the marketing benefit of something that's more senior focused, a silver nutrition, so to speak? And then just final question, in terms of the change to EBITDA guidance on the Nutrition side, how much of that relative to last -- the prior guidance is incremental investment spend as opposed to the lower revenue numbers?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [21]

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Perfect. I'll let Dawn take the first, and then we'll switch over to Adam on the second one.

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Adam C. Holland, Tivity Health, Inc. - CFO [22]

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And maybe we'll go backwards. David, this is Adam. I can answer quickly. And this is in the supplemental materials as well. It's approximately $3 million of investment that's embedded in that lower EBITDA guidance for the Nutrition segment.

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [23]

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Let me talk a little bit about our ability to address the senior market. First off, we know that one of the most relevant topics out there is the issue of food insecurity and the health plans are obviously embracing it as are we. And one of the things that Nutrisystem has is a whole team of food scientists and people that create different programs back at our offices in Fort Washington. And while we've been widely known as a weight loss company, you can see how quickly we were able to bring the South Beach Diet to market and you can envision how we can also design programs around areas of food insecurity or chronic conditions, if you will. And we believe that will be a driver of growth for us as we go forward.

In addition, again, it's about having the weight loss programs but going beyond that and then also using new channels, such as -- new channels to the Nutrition division, to legacy Nutrisystem to reach into the health plans, reach into the fitness providers to bring in new direct -- new customers through those channels that, again, can drive healthy revenues and growth that are not dependent on our current advertising and marketing strategy.

So from our perspective, the distribution that we are getting from this combined -- the combination of the 2 companies as well as the food science abilities to be able to reimagine ourselves from a weight loss company into a broader nutrition solution is what both Donato and I were referring to when we talk about the exciting growth prospects ahead for the Nutrition division in addition to the growth that we expect to have in our core business.

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Operator [24]

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Your next question comes from the line of Mike Petusky of Barrington Research.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [25]

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Adam, can you just give me roughly, if you guys do like $625 million in Healthcare, I mean, what will United represent roughly in terms of percentage of revs in 2020?

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Adam C. Holland, Tivity Health, Inc. - CFO [26]

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Yes. I mean the best way to think about it is, in 2019, we've got about $60 million of revenue with United, about $40 million of that relates to the group business and the remainder relates to individuals.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [27]

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Okay. So that number should be down a little bit in '20?

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Adam C. Holland, Tivity Health, Inc. - CFO [28]

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Yes. You -- and this goes back to Donato's point. You may have little growth through the open enrollment season, depending on if they add new group contracts for next year, and you will have a reduction in the individual lives based on what we said in prepared remarks. But the good news there is that we had previously not expected to retain any individual lives for 2020 and now that does not look to be like the case.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [29]

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Okay. All right. Great. And then a question on the food side. Did -- I didn't hear it if this was called out. Did South Beach show any growth either in the second quarter or for the first half?

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [30]

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South Beach did -- is not showing growth for the first half of the year, but again, a lot of that is because we refined our media strategy on that front and are repositioning it towards more focused on digital and less on TV as we look to distance in the 2 brands from one another.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [31]

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Okay. All right. And then Donato, I guess, on television, which you credited with some of the success on SilverSneakers, what changes going forward? Is it more? Is it for longer periods time? What changes as you think about television advertising and increasing awareness for SilverSneakers via TV?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [32]

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Yes. Let me hand that off to Dawn.

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [33]

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Okay. Great. Thank you. It's very timely that you asked that question because we actually have the cross-business-unit team in town this week to actually discuss the strategies as we get ready for 2020 with our television advertising. I think what you'll see is a little bit more of a niche focus on certain markets as we go forward and that -- again, probably most in the Q1 investment area, but we're kind of that refining that strategy as we go forward. But again, given the success that we had from the initial testing, we're very confident that this will be a nice driver to not only revenue growth in terms of getting more enrollees but also in engaging people to have more visits to the gym. So again it was an all-out success, and we'll refine that as we go forward to make it even more powerful.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [34]

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Okay. Great. And let me sneak one last one in for Adam. So you're looking at $55 million, $60 million of free cash generation. As an independent company Tivity was throwing off $100 million a year for the last couple of years in free cash. How quickly can you guys get back to $100 million of free cash generation or better sort of as you look out and going forward?

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Adam C. Holland, Tivity Health, Inc. - CFO [35]

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Yes. And mind you, the $100 million had a very low interest burden and that was an illustrative, both companies, without a burden of the debt. We certainly think where there is opportunities in terms of optimizing the working capital and cash flow, I mean, you'll note we were able to pay down as much as we were through a combination of better cash flow on hand at the start of the year. Our Chief Accounting Officer, Ryan Wagers, did an excellent job streamlining the cash flow mechanics within the combined company, which allowed us to accelerate some of our collections and paydown of debt.

And so we're laser-focused on that as you can see. I mean it's -- in the finance, if you were walking down the hallway, it's the top thing we think about is how do we improve free cash flow, grow it as efficiently along with earnings and then utilize that to pay down the debt and then, in turn, get the interest and the cost down.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [36]

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I mean, can you get back there in 3 years? Is that realistic?

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Adam C. Holland, Tivity Health, Inc. - CFO [37]

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Well, I don't want to get into long-range forecast speculation, but I'm optimistic. And again, you have to apples-to-apples with what the $55 million to $60 million represents, which is after the payment of interest. But as the company grows, we think there is things and levers we can pull to help optimize free cash flow.

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Operator [38]

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Your next question comes from Mohan Naidu with Oppenheimer.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [39]

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First, a quick clarification on the UnitedHealth individual lives. That 20% to 25%, is that going to be just a transitional lives in 2020? Or is there an opportunity for you to hold on to that subset?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [40]

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You know, I don't know. And one of the things that I think has been our greatest sense of the expansion of relationships with all of our health clients has been the investments, quite frankly, we've made into this business. And quite frankly, they've been sequential because we want to make sure that we're making the right investments. But the digital, the fact that we're addressing loneliness, the media, I have tell you that my regret is I wish we would have done it a few years ago, actually I wish, we would have done it 8 years ago. But the fact of the matter is, when you look at those investments and when you look at the Net Promoter Score of 81, quite frankly, we're waking up members. We're waking up individuals who have the program and didn't know it and they talk to their friends and their friends say it's one of the best programs out there.

And so what we have to do and we've been playing this out in a very careful script is execute, is do the things that we say we are going to do to drive greater member value. And I think that's where we will win on getting customers back. Look, many of the customers that you're seeing, quite frankly, in that 600,000 lives are customers who left us before and have come back. And so I will bet and will commit to all of you that we will continue to fiercely execute and allow our investments to carry the tall water, if you will.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [41]

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Maybe one more on the Humana Bold Goal initiative. Is this a combination program with their Well Done initiative? Or is this a separate program? And the second one on that is, there are other fewer -- I guess, other larger plans that seem to have some form of nutrition pilots. And how are your conversations with them? Go ahead.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [42]

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They do, and I guess, maybe, I have to clear up the muddy water. And I am probably the one who's not articulating correctly. We have something that nobody else has. And I want to remind everyone, it's called SilverSneakers, it's called we have the members. And we have the members that trust when we call them. And that's what the plans are saying to us, you have the members, you have the relationships. They may have gone off and partnered with other nutritional companies, quite frankly, because we didn't have that offering. But what we have to show is how we can drive value in the nutritional segment in terms of how we're modifying and developing elder care and senior care programs. However, make no mistake about it, the leveraging opportunity we have is with the Net Promoter Score of 81 and the great brand equity we have with those members and the ability to get things from those members that, quite frankly, others cannot. This is not just a fly in and drop nutrition in their homes. This is about managing the gestalt, managing the totality of that member when it comes to physical inactivity, social isolation and then knowing that they have nutritional needs, that's what we're going to win on. And I think that's why you're seeing already non-pilot contracts getting signed.

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Operator [43]

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Your next question comes from David Styblo of Jefferies.

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David Anthony Styblo, Jefferies LLC, Research Division - Equity Analyst [44]

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Donata, I think I'll start out on the Healthcare segment. And I was hoping you guys could provide a little bit more color around the 2020 guidance of high single digit to low double digits. If you would maybe help break that down into key subcomponents or drivers? For example, are you thinking about end-market growth in the MA business being 7%, 8% and then you're taking away, I think, maybe about 2 points of growth headwind from United peeling off to some extent, then plus whatever new customer wins plus perhaps increased participation? Is there something along those lines that you can provide us to give us little more sense of the key components that's adding up to the high single-digit, low double-digit outlook?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [45]

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Well, and I think we've done that when I've given you between 16 million and 16.5 million of eligibles into next year. So I think the way you just articulated it, David, I think is right on. You'll take off what you're losing on the left pocket, our whole concept left pocket to right pocket. And then obviously the new lives that are in the right pocket and the growth with Medicare. So I think you're kind of...

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Adam C. Holland, Tivity Health, Inc. - CFO [46]

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And to add on, the other thing, Dave -- this is Adam, is that also -- that high single to double also includes Prime, I don't want that to be lost. With new business coming into that segment, that's going to be a key component of the driver as well.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [47]

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And remember, we -- I'm surprised nobody has asked this question. We are adding a significant Medicare sub -- non-plan customer. They don't want their name mentioned right now and we normally don't mention names anyway. But to Adam's point, it is a combination, but you're right. Moving the needle in the total eligibles to 16 million to 16.5 million, remember we had a decline this year, so now we're back to real growth.

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David Anthony Styblo, Jefferies LLC, Research Division - Equity Analyst [48]

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Right. Right. But kind of a follow-up, with the Prime, the 1 million lives, is that Prime members that you're adding, did I hear correctly? Or is that for eligibles that you're adding?

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [49]

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Yes. These would be eligibles. This is a very interesting program that we are now offering, understanding what the competitive space is like and what our customers want. So it is a Prime, what I call, more optimized program, and you're correct. It's about 1.2 million of eligibles, so obviously, they have to sell into them just like we do with all the other Prime customers.

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David Anthony Styblo, Jefferies LLC, Research Division - Equity Analyst [50]

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Right. All right. And just on the Nutrition side for Dawn. Obviously, growth was really strong for a period of years up through '17. '18, you guys faced some challenges and '19, faced some challenges and seemingly got worse. I'm wondering if you can kind of walk us through the challenges that you're experiencing either in the competitive environment, innovation, maybe response time. What might -- if you could compare and contrast what those look like in '18 versus those that you're facing in '19 and sort of maybe any color that you could anticipate for an outlook for next year? I know you guys went and provided a revenue outlook on the Healthcare side. Curious are you expecting that business to hold stable next year or continued pressure as you recalibrate that business?

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [51]

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All right. Thanks for the question. I'll start and go backwards. So we're not giving any projections at this point on the Nutrition division going forward. But again, as my prepared remarks indicated, we have a lot of things moving in the right direction, most notably the digital work that what we're doing and our ability to expand reach as well as the technology components that we're putting in place, which will allow as to drive very efficient revenue opportunities.

So I am excited about a lot of the things that we're doing over the next couple of months as we get ready for diet season. I think, again, the focus of what I spoke about was our need to continue to innovate, and as we prepare for 2020, looking to become more aligned with the work we did in 2014 through 2017 where we introduced something that was truly new on Nutrisystem and actually launched South Beach from scratch. I would say and we talked about this in the past, going from 2017 to '18 -- and the 2 years are different stories. So the fact that '19 did not do as we had hoped on the innovation front is very different from the story in '18. In '18, we didn't really innovate. We've talked about that quite candidly, and how coming off from 2017, which was extraordinary growth for the Nutrisystem -- legacy Nutrisystem business, we had planned pretty much staying with the same thing that we had been doing going into '20 -- as we went from '17 to '18, so we didn't focus that much on innovation given the fact that we felt the strength of our 2017 would carry us forward.

Moving into 2019, we did address that, but the truth of the matter is we addressed it in a way that varied from the amount of -- from the work we did in 2014 and 2007 (sic) [2017] where we did it in a different way and did more of it in those times. And what we're seeing now is that the dynamics of the marketplace have changed, and again, we've been conducted extensive research, received significant consumer input, and we're implementing live testing as we go forward and believe that we do have really strong things coming up for us as we head into 2020.

So it's hard to go through and really say what is exactly different from our methodology that we used in '18 to get ready to '19. But again, we're going back more to our handbook in 2014, which is what -- much more live testing, live implementation and things along those lines. And really focus -- and I think it doesn't go unnoticed that the second half of last year for the Nutrition -- for Nutrisystem, we were -- while we were focused, we had a lot of other things that we were working on also. That's not an excuse, but again, as we look towards 2020, all hands on deck and, again, going back to the formula around innovation that we know works.

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Operator [52]

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Your next question comes from Sean Wieland with Piper Jaffray.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [53]

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I'm so sorry to hear about Chip. He always put a smile on our face, and I will miss him.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [54]

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Yes. Tough week for us.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [55]

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Yes. So first on Healthcare. The growth that you hinted at in 2020, can -- how much of that is driven by the new Prime agreement that your hinting at?

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Adam C. Holland, Tivity Health, Inc. - CFO [56]

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No, we're not breaking that out yet, Sean. We will as we get probably to our -- either in the JPMorgan conference or in our typical February when we give the components. It is not an insignificant piece. While that new contract, Donato mentioned, is a great win, we do have business that we won this year with Walmart that is just now going to be ramping up in late '19, that's going to be a piece of it. And we also have just -- we've got great organic growth success with the base member pay Prime business that we've had for several years. Now that we've been getting smarter at how we're implementing the right type of advertising at the right time of the year to activate that base of the original 41 million eligible Prime members.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [57]

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Yes. And keep in mind, listen, the majority of our revenue still is with SilverSneakers, so you can use that. I mean SilverSneakers are still carrying that the growth trajectory.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [58]

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Yes. I understand. What do you think the conversion rate could be of the 1.2 million members. How many of those would you expect to become members?

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Adam C. Holland, Tivity Health, Inc. - CFO [59]

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Yes. We haven't typically talked about the conversion rates before. I will say that it is exciting because I do look at this as a brand new fishing license with a cohort of individuals from a very different demographic from what I would say our base Prime membership is from. And I think there is potential for a newness factor that goes along or that nets up an insurance product that they have. And so I'm optimistic, but I'm not ready to go out there with estimates yet.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [60]

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Yes. And let me just say this, one thing we've learned about Prime and now we've learned about SilverSneakers is your willingness to co-market, your willingness to market will be a great determinant factor on how you get activations going. And I have to say that this particular partner is very committed to partnering and putting co-marketing programs together, so.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [61]

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Okay. Switching gears. Marketing expense, what does that look like? Can you tell us, first off, was there -- how much of that marketing expense was for Healthcare? And then what does that spend look like for the remainder of the year?

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Adam C. Holland, Tivity Health, Inc. - CFO [62]

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Yes. You had about -- bear with me 1 second, Sean. You had about $4 million of that Healthcare expense related to the Healthcare segment with the remainder in the Nutrition. But I want to point out that the number -- that $4 million for Healthcare, we still expect a $12 million media spend for all of 2019. The number that you see in the line item, the $4 million is inclusive of other overhead, payroll, benefits, some other items. I'd say about roughly 70% of that number relates to media, where the remainder relates to other overhead. So the point being, you may not see it add up to $12 million because there's other cost items associated with that, which we had reclassed out of our cost of sales down to this separate line item in 2019.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [63]

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Okay. And then on the Nutrition side of the business, I just haven't heard any commentary on the pricing environment and if that has had an impact on the revised guidance.

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [64]

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Well, actually, one of the things we've been able to do on a regular basis is increase price. So this year, we did go out with some promotional offers and -- but very recently, in July, we ended up increasing the price on both the men's and women's program across the board by $10, I believe it was, and we also are removing some of the -- are removing the promotion from the men's program. So it's something we constantly look at, and we are always testing and validating the impact that it has not just only on response, the calls or the traffic to the website, but also on conversion. So that was a nice win for us that we have going into the second half of the year and that will roll into 2020.

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Operator [65]

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Your next question comes from Mike Petusky with Barrington Research.

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Michael John Petusky, Barrington Research Associates, Inc., Research Division - MD & Senior Investment Analyst [66]

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Just a quick follow-up for Dawn. Dawn, I understand you can't get into the specifics, but I'm just curious as you think about innovation and messaging, is sort of low-carb, keto, paleo, this sort of manner of eating, which, frankly, does have a lot of following on Instagram and various digital outlets. I mean is that going to be a bigger part of what you guys do going forward or not?

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Dawn M. Zier, Tivity Health, Inc. - President, COO & Director [67]

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That's a good question. I would say, remember that we have the 2 different brands, so we have both Nutrisystem and the South Beach Diet, and I won't disclose anything specifically about the future for either brand in terms of what we're doing on the innovation front. But the South Beach Diet is entirely focused on low-carb keto-friendly option.

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Operator [68]

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There are no further questions at this time. I will now turn the call back over to Mr. Donato Tramuto.

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Donato J. Tramuto, Tivity Health, Inc. - CEO & Director [69]

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Very good. Thank you very much. And again, I want to thank all of you for joining us. We apologize for the length of the call, however, there are, as you can tell, a lot of updates. Make it a great evening, everyone. Thank you.

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Operator [70]

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This concludes today's conference call. You may now disconnect.