TIVITY HEALTH, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)
Please read the following discussion and analysis of our financial condition and
results of operations together with our consolidated financial statements and
related notes included under Item 8. “Financial Statements and Supplementary
Data” of this report.
Overview
1981. We are a leading provider of healthy life-changing solutions, including
SilverSneakers®, Prime® Fitness, and WholeHealth Living®. We help adults improve
their health and support them on life’s journey by providing access to in-person
and virtual physical activity, social engagement, and mental enrichment
programs. We deliver resources that enable members to live healthier, happier,
more connected lives. Our solutions support health plans and employers
nationwide as they seek to reduce costs and improve health outcomes.
We offer SilverSneakers to approximately 18 million eligible members of Medicare
Advantage, Medicare Supplement, and group retiree plans. We also offer
Fitness
employers, and other sponsoring organizations. Our national network of fitness
centers delivers both SilverSneakers and
our SilverSneakers fitness network encompassed approximately 16,000 locations.
In
SilverSneakers that increased our total SilverSneakers fitness network to
approximately 23,000 locations. We also offer virtual fitness experiences,
including live instructor-led classes. Through our WholeHealth Living program,
which we sell primarily to health plans, we offer a continuum of services
related to physical and integrative medicine. Our WholeHealth Living network
includes relationships with approximately 29,000 physical and integrative
medicine practitioner locations to serve individuals through health plans and
employers who seek health services such as chiropractic care, acupuncture,
physical therapy, occupational therapy, massage therapy, and more.
The Company is headquartered at
37067.
COVID-19
COVID-19, the global pandemic first recognized by HHS as a national public
health emergency in
States
national network were temporarily closed for portions of 2020, and the average
monthly total participation levels of our members after such locations reopened
were significantly below historical levels, thus adversely impacting our
revenues during 2020 because a significant portion of revenues from our
SilverSneakers program is based on member visits to a fitness partner location.
Participation levels increased during 2021 but remained below pre-pandemic
levels. SilverSneakers in-person visits totaled 58.4 million for 2021, compared
to 46.0 million and 104.0 million for 2020 and 2019, respectively. In addition,
while the number of active subscribers for
through
had increased slightly since the beginning of 2021.
Disposition of our Nutrition Business
Effective as of
of operations for
for all periods presented in the consolidated financial statements.
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Forward-Looking Statements
This report contains forward-looking statements, which are based upon current
expectations, involve a number of risks and uncertainties, and are subject to
the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include all statements that are not historical
statements of fact and those regarding the intent, belief, or expectations of
the Company, including, without limitation, all statements regarding the
Company’s future earnings, revenues, financial condition, business strategies,
and results of operations. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may vary from those in the
forward-looking statements as a result of various factors, including, but not
limited to:
• impacts from the COVID-19 pandemic (including the response of governmental
authorities to combat and contain the pandemic; the development,
availability, distribution, and effectiveness of vaccines and treatments,
and public confidence in such vaccines and treatments; the closure of
fitness centers in our national network (or operational restrictions imposed
on such fitness centers), reclosures, and potential additional reclosures or
restrictions as a result of surges in positive COVID-19 cases) on our
business, operations or liquidity;
• the risks associated with changes in macroeconomic conditions (including the
impacts of any recession or changes in consumer spending resulting from the
COVID-19 pandemic), widespread epidemics, pandemics (such as the current
COVID-19 pandemic, including variant strains of COVID-19) or other outbreaks
of disease, geopolitical turmoil, and the continuing threat of domestic or
international terrorism;
• our ability to collect accounts receivable from our customers and amounts
due under our sublease agreements;
• the market's acceptance of our new products and services;
• our ability to develop and implement effective strategies and to anticipate
and respond to strategic changes, opportunities, and emerging trends in our
industry and/or business, as well as to accurately forecast the related
impact on our revenues and earnings;
• the impact of any impairment of our goodwill, intangible assets, or other
long-term assets;
• changes in fair value of the Sharecare Equity Security and the expected
timing and amount of cash proceeds from any potential disposition of this
security;
• the expected timing, amount, and impact of any share repurchases made by the
Company;
• our ability to attract, hire, or retain key personnel or other qualified
employees and to control labor costs;
• our ability to effectively compete against other entities, whose financial,
research, staff, and marketing resources may exceed our resources;
• the impact of legal proceedings involving us and/or our subsidiaries,
products, or services, including any claims related to intellectual property
rights, as well as our ability to maintain insurance coverage with respect
to such legal proceedings and claims on terms that would be favorable to us;
• the impact of severe or adverse weather conditions, the current COVID-19
pandemic (including variant strains of COVID-19), and the potential
emergence of additional health pandemics or infectious disease outbreaks on
member participation in our programs;
• the risks associated with deriving a significant concentration of our
revenues from a limited number of our customers, many of whom are health
plans;
• our ability and/or the ability of our customers to enroll participants and
to accurately forecast their level of enrollment and participation in our
programs in a manner and within the timeframe we anticipate;
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• our ability to sign, renew and/or maintain contracts with our customers
and/or our fitness partner locations under existing terms or to restructure
these contracts on terms that would not have a material negative impact on
our results of operations;
• the ability of our health plan customers to maintain the number of covered
lives enrolled in those health plans during the terms of our agreements;
• our ability to add and/or retain active subscribers in our Prime Fitness
program;
• the impact of any changes in tax rates, enactment of new tax laws, revisions
of tax regulations, or any claims or litigation with taxing authorities;
• the impact of a reduction in Medicare Advantage health plan reimbursement
rates or changes in plan design;
• the impact of any new or proposed legislation, regulations and
interpretations relating to Medicare, Medicare Advantage, Medicare
Supplement and privacy and security laws;
• the impact of healthcare reform on our business;
• the risks associated with increased focus from investors and other
stakeholders regarding ESG practices, which could result in additional
costs, regulation, or risks and adversely impact our reputation, employee
recruiting and retention, and willingness of customers and suppliers to do
business with us;
• the risks associated with potential failures of our information systems or
those of our third-party vendors, including as a result of telecommuting
issues associated with personnel working remotely, which may include a
failure to execute on policies and processes in a work-from-home or remote
model;
• the risks associated with data privacy or security breaches, computer
hacking, network penetration and other illegal intrusions of our information
systems or those of third-party vendors or other service providers,
including those risks that result from the increase in personnel working
remotely, which may result in unauthorized access by third parties, loss,
misappropriation, disclosure or corruption of customer, employee or our
information, or other data subject to privacy laws and may lead to a
disruption in our business, costs to modify, enhance, or remediate our
cybersecurity measures, enforcement actions, fines or litigation against us,
or damage to our business reputation;
• the risks associated with changes to traditional office-centered business
processes and/or conducting operations out of the office in a work-from-home
or remote model by us or our third-party vendors during adverse situations
(e.g., during a crisis, disaster, or pandemic), which may result in
additional costs and/or may negatively impact productivity and cause other
disruptions to our business;
• our ability to enforce our intellectual property rights;
• the risk that our indebtedness may limit our ability to adapt to changes in
the economy or market conditions, expose us to interest rate risk for the
variable rate indebtedness and require a substantial portion of cash flows
from operations to be dedicated to the payment of indebtedness;
• our ability to service our debt, make principal and interest payments as
those payments become due, and remain in compliance with our debt covenants;
• our ability to obtain adequate financing to provide the capital that may be
necessary to support our current or future operations;
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• counterparty risk associated with our interest rate swap agreements and
changes in fair value of certain interest rate swap agreements that no
longer qualify for hedge accounting treatment ("de-designated swaps"); and
• other risks detailed in this report and our other filings with the
Securities and Exchange Commission .
We undertake no obligation to update or revise any such forward-looking
statements.
Critical Accounting Policies
We describe our significant accounting policies in Note 1 of the notes to the
consolidated financial statements. We prepare the consolidated financial
statements in conformity with generally accepted accounting principles in
United States
that affect the reported amounts of assets and liabilities and related
disclosures at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.
We believe the following accounting policies are the most critical in
understanding the estimates and judgments that are involved in preparing our
financial statements and the uncertainties that could impact our results of
operations, financial condition, and cash flows.
Revenue Recognition
We account for revenue from contracts with customers in accordance with
Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with
Customers” (“ASC Topic 606”). The unit of account in ASC Topic 606 is a
performance obligation, which is a promise in a contract to transfer to a
customer either a distinct good or service (or bundle of goods or services) or a
series of distinct goods or services provided over a period of time. ASC Topic
606 requires that a contract’s transaction price, which is the amount of
consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer, is to be allocated to
each performance obligation in the contract based on relative standalone selling
prices and recognized as revenue when or as the performance obligation is
satisfied.
We earn revenue from continuing operations primarily from three programs:
SilverSneakers senior fitness,
the SilverSneakers senior fitness program to members of Medicare Advantage,
Medicare Supplement, and group retiree plans through our contracts with those
plans. We offer
contracts with commercial health plans, employers, and other sponsoring
organizations that allow their members to individually purchase the program. We
sell our WholeHealth Living program primarily to health plans.
The significant majority of our customer contracts contain one performance
obligation – to stand ready to provide access to our network of fitness
locations and fitness programming – which is satisfied over time as services are
rendered each month over the contract term. Unsatisfied performance obligations
at the end of a particular month primarily relate to certain monthly memberships
for our
consolidated balance sheet and recognized as revenue during the immediately
subsequent month. There was
ended
period.
Our fees are variable month to month and are generally billed per member per
month (“PMPM”) or billed based on a combination of PMPM and member visits to a
network location. We bill PMPM fees by multiplying the contractually negotiated
PMPM rate by the number of members eligible for or receiving our services during
the month. We bill for member visits approximately one month in arrears once
actual member visits are known. Payments from customers are typically due within
30 days of invoice date. When material, we capitalize costs to obtain contracts
with customers and amortize them over the expected recovery period.
Our customer contracts include variable consideration, which is allocated to
each distinct month over the contract term based on eligible members and/or
member visits each month. The allocated consideration corresponds directly with
the value to our customers of our services completed for the month. Under the
majority of our contracts, we recognize revenue each month using the practical
expedient available under ASC 606-10-55-18, which provides that revenue is
recognized in the amount for which we have the right to invoice. ASC 606-10-50-
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14(b) provides an optional exemption, which we have elected to apply, from
disclosing remaining performance obligations when revenue is recognized from the
satisfaction of the performance obligation in accordance with the “right to
invoice” practical expedient.
Although we evaluate our financial performance and make resource allocation
decisions based upon the results of our single operating and reportable segment,
we believe the following information depicts how our revenues and cash flows
from continuing operations are affected by economic factors. For the year ended
predominantly contracted with Medicare Advantage and Medicare Supplement plans,
comprised 75% of revenues from continuing operations, while revenue from our
respectively, of revenues from continuing operations.
Sales and usage-based taxes are excluded from revenues.
Impairment of Intangible Assets and
We review goodwill for impairment at the reporting unit level (operating segment
or one level below an operating segment) on an annual basis (during the fourth
quarter of our fiscal year) or more frequently whenever events or circumstances
indicate that the carrying value may not be recoverable. Following the sale of
As part of the annual impairment test, we may elect to perform a qualitative
assessment to determine whether it is more likely than not that the fair value
of the reporting unit is less than its carrying value. If we elect not to
perform a qualitative assessment or we determine that it is more likely than not
that the fair value of the reporting unit is less than its carrying value, we
perform a quantitative review. During the quantitative review, if the estimated
fair value of the reporting unit exceeds its carrying amount, no impairment is
indicated. If the estimated fair value of the reporting unit is less than its
carrying amount, impairment of goodwill is measured as the excess of the
carrying amount over fair value.
We review indefinite-lived intangible assets for impairment on an annual basis
(during the fourth quarter of our fiscal year) or more frequently whenever
events or circumstances indicate that the carrying value may not be recoverable.
We estimate the fair value of our indefinite-lived tradename using the
relief-from-royalty method, which requires us to estimate significant
assumptions such as the long-term growth rates of future revenues associated
with the tradename, the royalty rate for such revenue, the terminal growth rate
of revenue, the tax rate, and a discount rate. Changes in these estimates and
assumptions could materially affect the estimates of fair value for the
tradename.
Key Performance Indicators
In managing our business, we regularly review and analyze a number of key
performance indicators (“KPIs”), including revenues, adjusted EBITDA (both in
dollars and as a percentage of revenues), and free cash flow. Adjusted EBITDA
and free cash flow are not calculated in accordance with
(“non-GAAP”). These KPIs help us monitor our performance, identify trends
affecting our business, determine the allocation of resources, and assess the
quality and potential variability of our cash flows and earnings. We believe
they are useful to investors in evaluating and understanding our business.
During 2021, we updated our definition of adjusted EBITDA as follows: (i) during
the first quarter of 2021 to exclude other (income) expense related to
de-designated swaps; (ii) during the second quarter of 2021 to exclude loss on
extinguishment and modification of debt; and (iii) during the third quarter of
2021 to exclude other (income) expense related to realized and unrealized gains
and losses on our Sharecare Equity Security, as further described in Note 12 of
the notes to consolidated financial statements included in this report. We
consider such items to be outside the performance of our ongoing core business
operations and believe that presenting Adjusted EBITDA excluding these items
provides increased transparency as to the operating costs of our current
business performance. We revised Adjusted EBITDA for 2020 to exclude other
(income) expense incurred during the fourth quarter of 2020 related to
de-designated swaps; except for this revision, we did not revise prior periods’
Adjusted EBITDA amounts because there were no other costs in the prior periods
similar in nature to the items that were newly excluded from Adjusted EBITDA
during 2021.
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Additionally, beginning in the fourth quarter of 2020, we revised the definition
of free cash flow to exclude settlement on derivatives not designated as hedges,
a new item for 2020 that did not exist in prior periods. Settlement on
derivatives not designated as hedges arose in 2020 due to the de-designation of
certain interest rate swaps in the fourth quarter of 2020 in connection with the
repayment of a portion of the principal on the term loans under our Prior Credit
Agreement, as further described in Note 14 of the notes to consolidated
financial statements included in this report. We believe it is appropriate to
exclude settlement on derivatives not designated as hedges from free cash flow
because these payments are similar to interest payments (which are reflected in
cash flow from operating activities) and they reduce our cash available to repay
debt or make other investments. Beginning in the third quarter of 2021, we
further revised the definition of free cash flow such that it includes proceeds
from the sale of equity securities, a new item for 2021 related to our Sharecare
Equity Security that did not exist in prior periods. We believe it is
appropriate to include such proceeds in free cash flow because they are
available to be used to support our business.
Year Ended December 31, (In $000s) 2021 2020 2019
Revenues from continuing operations
Adjusted EBITDA from continuing operations 158,077 148,081 142,561
Adjusted EBITDA as a percentage of
revenues from continuing operations 32.8 % 33.8 % 22.5 %
• Revenues - we review year-over-year changes in revenue from continuing
operations as a key measure of our success in growing our business. In
addition to measuring revenue in total, we also measure and report revenue
by program type or source of revenue, as detailed in Note 4 of the notes to
the consolidated financial statements included in this report, i.e.,
SilverSneakers, Prime Fitness , WholeHealth Living, and Other. Evaluating
revenue by program type or source helps us identify and address changes in
product mix, broad market factors that may affect our revenues, and
opportunities for future growth.
• Adjusted EBITDA is a non-GAAP measure and is defined by the Company as
earnings before interest, taxes, depreciation and amortization, acquisition,
integration, project and CEO transition costs, restructuring charges, loss
on extinguishment and modification of debt, and other (income) expense. We
believe adjusted EBITDA provides investors a helpful measure for comparing
our operating performance with our historical operating results as well as
the performance of other companies that may have different financing and
capital structures or tax rates. We believe it is a useful indicator of the
operational strength and performance of our business. Because adjusted
EBITDA may be defined differently by other companies in our industry, the
financial measure presented herein may not be comparable to similarly titled
measures of other companies. A reconciliation of adjusted EBITDA to income
from continuing operations (the most comparable U.S. GAAP measure) is set
forth below.
Year Ended December 31,
(In thousands) 2021 2020 2019
Income from continuing operations, GAAP
basis $ 107,376 $ 56,869 $ 45,217
Income tax expense 26,345 17,530 20,293
Interest expense 34,762 43,477 41,803
Depreciation expense 11,298 9,930 7,137
EBITDA from continuing operations,
non-GAAP basis (1) $ 179,781 $ 127,806 $ 114,450
Acquisition, integration, project and CEO
transition costs (2) 3,597 15,691 26,230
Restructuring charges (3) - 4,358 1,881
Loss on extinguishment and modification of
debt (4) 19,027 - -
Other (income) expense (5) (44,328 ) 226 -
Adjusted EBITDA from continuing
operations, non-GAAP basis (6) $ 158,077 $ 148,081 $ 142,561
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(1) EBITDA from continuing operations is a non-GAAP financial measure. We
believe it is useful to investors to provide disclosures of our
operating results on the same basis as that used by management. You
should not consider EBITDA from continuing operations in isolation or as
a substitute for income from continuing operations determined in
accordance with U.S. GAAP.
(2) Acquisition, integration, project and CEO transition costs consist of
pre-tax charges of $3,597 , 15,691, and $26,230 for fiscal 2021, 2020,
and 2019, respectively, incurred in connection with the acquisition and
integration of Nutrisystem and other strategic projects and with the
termination of our former CEO in February 2020 and the hiring of our new
CEO in June 2020 .
(3) Restructuring charges in 2020 consist of pre-tax charges of $4,358
primarily related to optimizing for growth and executing on our new
strategy and eliminating certain compensation costs in response to the
COVID-19 pandemic. Restructuring charges for 2019 consist of pre-tax
charges of $1,881 related to integrating the Nutrisystem business and
streamlining our corporate and operations support.
(4) Loss on extinguishment and modification of debt consists of pre-tax
charges of $19,027 in 2021 related to our entering into the new Credit
Agreement on June 30, 2021 , as further described in Note 10 of the notes
to consolidated financial statements included in this report.
(5) Other (income) expense consists of pre-tax income of ($44,328 ) and
expense of $226 in 2021 and 2020, respectively, related to (i) realized
and unrealized gains on our Sharecare Equity Security (applicable to
2021 only), as further described in Note 12 of the notes to consolidated
financial statements included in this report, and (ii) certain interest
rate swap agreements that no longer qualify for hedge accounting
treatment ("de-designated swaps") and require changes in fair value to
be recognized each period in current earnings, as further described in
Note 14 of the notes to consolidated financial statements included in
this report.
(6) Adjusted EBITDA from continuing operations is a non-GAAP financial
measure. We exclude acquisition, integration, project and CEO transition
costs, restructuring charges, loss on extinguishment and modification of
debt, and other (income) expense from this measure because of its
comparability to our historical operating results. We believe it is
useful to investors to provide disclosures of our operating results on
the same basis as that used by management. You should not consider
Adjusted EBITDA from continuing operations in isolation or as a
substitute for income from continuing operations determined in
accordance with U.S. GAAP. Additionally, because Adjusted EBITDA from
continuing operations may be defined differently by other companies in
the Company's industry, the non-GAAP financial measure presented here
may not be comparable to similarly titled measures of other companies.
• Free cash flow is a non-GAAP measure and is defined by the Company as net
cash flows provided by operating activities less (i) acquisition of
property and equipment and (ii) settlement on derivatives not designated as
hedges, plus proceeds from sale of equity securities. We believe free cash
flow is useful to management and investors to measure (i) our performance,
(ii) the strength of the Company and its ability to generate cash, and
(iii) the amount of cash that is available to repay debt or make other
investments. A reconciliation of free cash flow to cash flows from
operating activities (the most comparable U.S. GAAP measure) is set forth
below. The amounts shown below represent consolidated figures that include
the effects of owning Nutrisystem .
Year Ended December 31,
(In thousands) 2021 2020 2019
Net cash flows provided by operating
activities $ 87,123 $ 169,447 $ 82,305
Acquisition of property and equipment (14,750 ) (15,525 ) (24,713 )
Settlement on derivatives not designated
as hedges (6,697 ) (1,499 ) -
Proceeds from sale of equity securities 2,728 - -
Free cash flow $ 68,404 $ 152,423 $ 57,592
Outlook
Although there is significant uncertainty relating to the potential impacts of
the ongoing COVID-19 pandemic on our business going forward, including the
impact on member participation in our SilverSneakers programs, our ability to
continue to attract paying subscribers for our
ultimate medium- and long-
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term impact of the pandemic on the global economy, we expect our results from
continuing operations for the short term to continue to be adversely impacted by
COVID-19.
Executive Overview of Results
The key financial results for 2021 are:
• Revenues from continuing operations of$481.3 million compared to$437.7 million for 2020; and • Pre-tax income from continuing operations of$133.7 million compared to$74.4 million for 2020. Pre-tax income from continuing operations for 2021 includes: o$39.2 million of unrealized gains and$2.5 million of realized gains related to our equity ownership in Sharecare, compared to$0 for the same period in 2020; o$34.8 million of interest expense compared to$43.5 million for 2020; o$6.5 million of marketing expenses, compared to$12.2 million for 2020; o$3.6 million of acquisition, integration, project, and CEO transition costs compared to$15.7 million for 2020; o$2.6 million of unrealized gains related to de-designated swaps, compared to unrealized losses of$0.2 million for 2020; and o$0 million of restructuring and related charges compared to$4.4 million for 2020; • Loss from discontinued operations, net of income tax benefit, of$2.5 million compared to$280.5 million for 2020.
Results of Operations
The following table sets forth the components of the consolidated statements of
operations for the years ended
percentage of revenues from continuing operations.
Year Ended December 31,
2021 2020 2019
Revenues 100.0 % 100.0 % 100.0 %
Cost of revenue (exclusive of depreciation
included below) 57.8 % 57.2 % 70.4 %
Marketing 1.4 % 2.8 % 2.8 %
Selling, general and administrative expenses 8.7 % 9.8 % 8.4 %
Depreciation expense 2.3 % 2.3 % 1.1 %
Restructuring and related charges - 1.0 % 0.3 %
Operating income (1) 29.8 % 27.0 % 17.0 %
Interest expense 7.2 % 9.9 % 6.6 %
Loss on extinguishment and modification of
debt 4.0 % - -
Other (income) expense, net (9.2 )% 0.1 % -
Income before income taxes (1) 27.8 % 17.0 % 10.3 %
Income tax expense 5.5 % 4.0 % 3.2 %
Income from continuing operations (1) 22.3 % 13.0 % 7.1 %
Loss from discontinued operations, net of
income tax (0.5 )% (64.1 )% (52.4 )%
Net income (loss) (1) 21.8 % (51.1 )% (45.3 )%
(1) Figures may not add due to rounding.
Following is a discussion and analysis of our results of operations and
financial condition, which should be read in conjunction with our consolidated
financial statements and related notes included under Part II, Item 8 of this
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report. Discussions of 2019 results and year-to-year comparisons between 2020
and 2019 are not included in this Form 10-K, and can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Part II, Item 7 of the our Annual Report on Form 10-K for the fiscal year ended
Revenues
Revenues from continuing operations were
of a net increase in SilverSneakers revenue of
increase in revenue-generating visits as the effects of the COVID-19 pandemic
lessened compared to the prior year period. Beginning in
substantially all of our fitness partner locations temporarily closed, with some
locations reopening in May and June and throughout the remainder of 2020. For
2020, the average monthly total participation levels of our SilverSneakers
members were significantly below historical levels. As a result, revenues from
PMPM fees represented 54% of SilverSneakers revenue for 2020, compared to 47%
for the same period in 2021. This increase was partially offset by a net
decrease of
of 2020 (that did not recur in 2021) from a program with a large employer
seeking to improve its employees’ well-being during the COVID-19 pandemic.
Cost of Revenue
Cost of revenue from continuing operations (excluding depreciation) as a
percentage of revenues increased from 2020 (57.2%) to 2021 (57.8%), primarily
due to (i) an increase in participation levels, which led to higher visit costs
as a percentage of revenues, particularly revenues from PMPM fees and (ii) an
increase in the level of short-term incentive compensation based on the
Company’s financial performance against pre-established targets. This increase
was slightly offset by decreases due to (i) a decrease in acquisition,
integration, and project costs, and (ii) the fixed nature of certain costs that
do not increase proportionately with increases in revenue. These costs
represented a lower percentage of revenue during 2021 due to the increase in
revenue compared to 2020.
Marketing Expenses
Marketing expenses from continuing operations as a percentage of revenues
decreased from 2020 (2.8%) to 2021 (1.4%), primarily due to decreased spending
in 2021 on SilverSneakers television advertising, due in part to the COVID-19
pandemic as well as a shift in our media mix towards more targeted digital
marketing.
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations as a
percentage of revenues decreased from 2020 (9.8%) to 2021 (8.7%) primarily due
to decreases in (i) acquisition, integration, and project costs and (ii) CEO
transition-related expenses associated with the termination of our former CEO in
were partially offset by increases in (i) costs to advance our strategy, such as
our new omnichannel marketing platform, and (ii) an increase in the level of
short-term incentive compensation based on the Company’s financial performance
against pre-established targets.
Depreciation Expense
Depreciation expense from continuing operations did not change materially from
2020 to 2021.
Restructuring and Related Charges
2019 Restructuring Plan
During the first quarter of 2019, we began a reorganization primarily related to
integrating the
operations support (the “2019 Restructuring Plan”). The 2019 Restructuring Plan
concluded during the first quarter of 2020.
2020 COVID Restructuring Plan
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During the second quarter of 2020, we began a reorganization plan primarily
related to eliminating certain compensation costs in response to the COVID-19
pandemic in order to preserve our liquidity and manage our cash flows (“2020
COVID Restructuring Plan”). The 2020 COVID Restructuring Plan was completed
during the third quarter of 2020.
2020 Restructuring Plan
During the third quarter of 2020, we began a reorganization plan primarily
related to optimizing our business for growth and executing on our new strategy
(“2020 Restructuring Plan”). The 2020 Restructuring Plan was completed during
the fourth quarter of 2020.
We incurred restructuring charges under each of the 2019 Restructuring Plan, the
2020 COVID Restructuring Plan, and the 2020 Restructuring Plan as set forth
below. These expenses consist entirely of severance and other employee-related
costs.
Year
Ended December 31,
(In millions) 2020 Cumulative To Date
2019 Restructuring Plan $ 0.5 $ 2.4
2020 COVID Restructuring Plan 0.8 0.8
2020 Restructuring Plan 3.1 3.1
$ 4.4 $ 6.3
Interest Expense
Interest expense from continuing operations decreased by
compared to 2020, primarily driven by a decrease in cash interest due to (i) a
lower average level of outstanding borrowings in 2021 compared to 2020 and (ii)
a reduction in the LIBOR margin for Term B Loans under the Credit Agreement
compared to the Prior Credit Agreement.
Loss on Extinguishment and Modification of Debt
Upon execution of the Credit Agreement on
extinguishment of debt of
costs of
Note 10 of the notes to consolidated financial statements included in this
report for further information.
Other (Income) Expense, Net
Other (income) expense, net was
million
Equity Security totaling
12 of the notes to consolidated financial statements included in this report,
and (ii) changes in fair value of certain interest rate swap agreements that,
effective in the fourth quarter of 2020, no longer qualify for hedge accounting
treatment (“de-designated swaps”). The combined unrealized and realized gains
on our Sharecare Equity Security of
share by
Income Tax Expense
See Note 8 of the notes to consolidated financial statements in this report for
a discussion of income tax expense for 2021 compared to fiscal 2020. For the
fourth quarter of 2021, we had income tax expense of
loss of
unrealized loss of
Sharecare Equity Security (as defined in Note 12 in the notes to consolidated
financial statements included in this report). The income tax benefit that would
have otherwise resulted from such unrealized loss was fully offset by income tax
expense due to an increase in the valuation allowance on deferred tax assets
related to capital loss carryforwards.
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Liquidity and Capital Resources
Overview
As of
million
deferred loan costs and original issue discount, and we had
cash and cash equivalents. In addition, we had working capital of
million
subject to restrictions on resale as further described in Note 12 of the notes
to consolidated financial statements included in this report.
Sources of Liquidity
Our sources of liquidity primarily include cash on hand, cash flows from
operations, and available credit under the Credit Agreement. As
of
have sufficient liquidity to fund our operations and meet our short-term and
long-term obligations.
Cash Flows Provided by Operating Activities
Operating activities during 2021 provided cash of
flows from operating activities from
2020
the fact that collections during the first several months of 2020 were related
to billable visits that occurred prior to the negative impacts on our business
from the COVID-19 pandemic and were therefore significantly higher than the same
period in 2021. These reductions were partially offset by decreased payments
related to interest and income taxes.
Cash Flows Provided by/Used in Investing Activities
Investing activities during 2021 used cash of
provided of
from the sale of
Cash Flows Used in Financing Activities
Financing activities during 2021 used cash of
million
under the Prior Credit Agreement and the Credit Agreement during 2021 compared
to 2020.
Material Cash Requirements
Our material cash requirements from known contractual and other obligations
primarily relate to our debt and lease obligations. We generally do not have
binding and enforceable purchase orders beyond the short term. In
2021
our common stock, with no expiration date. We are not obligated to repurchase
any specific number of shares, and the timing and actual number of shares
repurchased will depend on a variety of factors, including our stock price,
general economic, business and market conditions, and alternative investment
opportunities. The repurchase program may be modified or terminated by the
Company’s board of directors at any time.
We are required to repay the outstanding principal of
Term Loan B in quarterly installments of
of each quarter until maturity on
outstanding principal balance is due and payable in full. As a result of
prepayments made in 2021, our next quarterly installment of
in
maturing in
five are not considered effective hedges (“de-designated swaps”). Based on our
outstanding borrowings under the Credit Agreement and the applicable interest
rates as of
are
In addition, based on the applicable interest rates as of
estimate that our total cash settlement obligations for the de-designated swaps
are
payments may differ
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from estimates. Refer to Notes 10 and 14 of the notes to the consolidated
financial statements for further details on debt and interest rate swaps. As
of
requirements of the Credit Agreement.
Additionally, we have operating and financing leases for office space,
equipment, and a network server. Our two operating leases have remaining lease
terms of 14 months and 33 months, and our two financing leases have remaining
lease terms of less than one year. We maintain two sublease agreements with
respect to one of our office locations, each of which continues through the
initial term of our master agreement. At
operating and finance lease payments are expected to be
million
expected to be
future operating lease payments, including those due within the next twelve
months, are expected to be offset by cash receipts from sublease contracts.
Refer to Note 9 of the notes to the consolidated financial statements for
further details. Finally, during 2022 we are required to pay
vendor as a deposit to be applied against our actual fees incurred during 2022
and beyond. Any unused portion of the deposit will be refunded at the end of
the contract term.
While the COVID-19 pandemic has created significant uncertainty as to general
economic and market conditions for 2022 and beyond, as of the date of issuance
of this report, we believe our cash on hand, expected cash flows from
operations, and anticipated available credit under the Credit Agreement will be
sufficient to fund our operations, principal and interest payments, and capital
expenditures for the next 12 months. We cannot assure you that we will be able
to secure additional financing if needed and, if such funds are available,
whether the terms or conditions will be favorable to us. With the uncertainty
surrounding COVID-19, our ability to engage in financing transactions may be
constrained by (i) volatile or tight economic, capital, credit and/or financial
market conditions, (ii) moderated investor and/or lender interest or capacity,
(iii) restrictions under our Credit Agreement, and/or (iv) our liquidity,
leverage and net worth, and we can provide no assurance as to successfully
completing, the costs of, or the operational limitations arising from, any one
or series of such transactions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of
Recent Relevant Accounting Standards
See Note 3 of the notes to consolidated financial statements included in this
report for discussion of recent relevant accounting standards.
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