TIVITY HEALTH, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

As used throughout this Quarterly Report on Form 10-Q, unless the context
otherwise indicates, the terms “we,” “us,” “our,” “Tivity Health,” or the
“Company” refer collectively to Tivity Health, Inc. and its wholly-owned
subsidiaries. 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 1. “Financial Statements” of
this report.

Overview

Tivity Health, Inc. was founded and incorporated in Delaware in 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 Prime
Fitness
, a fitness facility access program, through commercial health plans,
employers, and other sponsoring organizations. Our national network of fitness
centers delivers both SilverSneakers and Prime Fitness. In January 2022, we
launched a customizable, premium fitness network for 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 30,000 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.

Effective as of December 9, 2020, we completed the sale of Nutrisystem. Results
of operations for Nutrisystem have been classified as discontinued operations
for all periods presented in the consolidated financial statements.

Merger Agreement

As described more fully in Note 16 of the notes to consolidated financial
statements included in this report, on April 5, 2022, we entered into a Merger
Agreement providing for the acquisition of the Company by affiliates of Stone
Point Capital
, subject to the terms and conditions set forth in the Merger
Agreement.

Subject to the terms and conditions of the Merger Agreement, at the Effective
Time, each share of Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive $32.50 in cash,
without interest. The consummation of the Merger is subject to the satisfaction
or waiver of various customary conditions set forth in the Merger Agreement,
including, but not limited to, the adoption of the Merger Agreement by the
Company’s stockholders and the receipt of certain regulatory approvals. The
consummation of the Merger is not subject to a financing condition.

COVID-19

COVID-19, the global pandemic first recognized by the U.S. Department of Health
and Human Services
as a national public health emergency in January 2020,
continues to spread throughout the United States and other countries. During
2020, the average monthly total participation levels of our SilverSneakers
members were significantly below historical levels. Since 2020, participation
levels have increased but remain below pre-pandemic levels, thus adversely
impacting our revenues because a significant portion of revenues from our
SilverSneakers program is based on member visits. SilverSneakers in-person
visits totaled 16.9 million and 11.2 million for three months ended March 31,
2022
and 2021, respectively. In addition, while the number of active subscribers
for Prime Fitness declined from April through December 2020, as of March 31,
2022
, the number of active subscribers had increased slightly since the
beginning of 2021.

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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:

   •  the risk that the proposed Merger may not be completed in a timely manner or
      at all, which may adversely affect our business and the price of our Common
      Stock;



   •  the failure to satisfy any of the conditions to the consummation of the
      proposed Merger, including the adoption of the Merger Agreement by our
      stockholders and the receipt of certain regulatory approvals;



   •  the occurrence of any event, change or other circumstance or condition that
      could give rise to the termination of the Merger Agreement, including in
      circumstances requiring us to pay a termination fee;



   •  the effect of the announcement or pendency of the proposed Merger on our
      business relationships, operating results and business generally;



  • risks that the proposed Merger disrupts our current plans and operations;



  • our ability to retain and hire key personnel in light of the proposed Merger;



   •  risks that the proposed Merger diverts management's attention from our
      ongoing business operations;



  • unexpected costs, charges or expenses resulting from the proposed Merger;



   •  the ability of Stone Point Capital to obtain the necessary financing
      arrangements set forth in the commitment letters received in connection with
      the Merger;



   •  potential litigation relating to the Merger that could be instituted against
      Stone Point Capital, the Company or their respective directors, managers or
      officers, including the effects of any outcomes related thereto;



  • continued availability of capital and financing;



   •  certain restrictions during the pendency of the Merger that may impact our
      ability to pursue certain business opportunities or strategic transactions;



   •  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;


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  • 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;



   •  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;


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   •  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;



   •  counterparty risk associated with our interest rate swap agreements and
      changes in fair value of the de-designated swaps; and



   •  other risks detailed in this report and our other filings with the U.S.
      Securities and Exchange Commission (the "SEC").


We undertake no obligation to update or revise any such forward-looking
statements.

Business Strategy

Our strategy is to enable healthier, happier and more connected lives as a
digital platform engagement company that not only provides in-person and virtual
fitness, social engagement and mental enrichment opportunities, but also an
insights-driven, personalized experience. Our goal is to increase the number of
eligible and enrolled SilverSneakers members and broaden engagement through
strong health plan partnerships, a robust national network of approximately
23,000 fitness locations, live-with-instructor and on-demand virtual classes,
and non-fitness activities that support social connection and lifelong learning.
We will also focus on increasing the number of subscribers to Prime Fitness,
targeting adults aged 18-64 who are members of sponsoring organizations, through
our national network of approximately 12,500 participating locations and our
daily live streaming classes. In addition, we plan to accelerate growth in our
WholeHealth Living offering through market share expansion and improved
technology.

Critical Accounting Policies

We describe our significant accounting policies in Note 1 to the consolidated
financial statements in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 (“2021 Form 10-K”). We prepare the consolidated financial
statements in conformity with generally accepted accounting principles in the
United States

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(“U.S. GAAP”), which requires us to make estimates and judgments 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, Prime Fitness and WholeHealth Living. We provide
the SilverSneakers senior fitness program to members of Medicare Advantage,
Medicare Supplement, and group retiree plans through our contracts with those
plans. We offer Prime Fitness, a fitness facility access program, through
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 Prime Fitness program, which are recorded as deferred revenue on the
consolidated balance sheet and recognized as revenue during the immediately
subsequent month. There was $0.1 million of revenue recognized during the three
months ended March 31, 2022 from performance obligations satisfied in a prior
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
606-10-50-14(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 three
months ended March 31, 2022, revenue from our SilverSneakers program, which is
predominantly contracted with Medicare Advantage and Medicare Supplement plans,
comprised 75% of revenues from continuing operations, while revenue from our
Prime

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Fitness and WholeHealth Living programs comprised 20% and 5%, respectively, of
revenues from continuing operations.

Sales and usage-based taxes are excluded from revenues.

Impairment of Intangible Assets and Goodwill

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. We have a single
reporting unit.

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 U.S. GAAP
(“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.

We have one reportable segment and therefore do not review and analyze revenues
or adjusted EBITDA on a segment-level basis or as KPIs. Instead, we review and
analyze revenues from continuing operations and adjusted EBITDA from continuing
operations. 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 10 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 did not revise the prior periods’ Adjusted EBITDA
amounts because there were no costs similar in nature to these items.

                                                         Three Months Ended
(In $000s)                                                    March 31,
                                                      2022                2021
Revenues from continuing operations              $       127,513     $       108,085
Adjusted EBITDA from continuing operations                37,351              41,194
Adjusted EBITDA as a percentage of revenues
from continuing operations                                  29.3 %              38.1 %




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   •  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, integration,
      project, and CEO transition costs 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.



                                                     Three Months Ended March 31,
(In thousands)                                        2022                  2021
Income from continuing operations, GAAP basis    $           644       $        19,944
Income tax expense                                         8,086                 7,620
Interest expense                                           6,993                10,756
Depreciation expense                                       3,206                 2,683
EBITDA from continuing operations, non-GAAP
basis (1)                                        $        18,929       $        41,003
Integration, project and CEO transition costs
(2)                                                        1,737                 1,321
Other (income) expense (3)                                16,685                (1,130 )
Adjusted EBITDA from continuing operations,
non-GAAP basis (4)                               $        37,351       $        41,194



   (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 and guidance 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) Integration, project, and CEO transition costs consist of pre-tax charges
       of $1,737 and $1,321 for the three months ended March 31, 2022 and 2021,
       respectively, primarily incurred in connection with strategic projects
       (including the proposed Merger) and with the termination of our former CEO
       in February 2020 and the hiring of our new CEO in June 2020.



   (3) Other (income) expense consists of pre-tax expense of $16,685 and pre-tax
       income of ($1,130) for the three months ended March 31, 2022 and 2021,
       respectively, related to (i) unrealized losses on the Sharecare Equity
       Security during the first quarter of 2022, as further described in Note 10
       of the notes to consolidated financial statements included in this report,
       and (ii) unrealized gains on de-designated swaps, as further described in
       Note 12 of the notes to consolidated financial statements included in this
       report.



   (4) Adjusted EBITDA from continuing operations is a non-GAAP financial
       measure.  We exclude integration, project, and CEO transition costs, 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.




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   •  Free cash flow is a non-GAAP measure and is defined by the Company as net
      cash flows provided by operating activities less acquisition of property and
      equipment and settlement on derivatives not designated as hedges.  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 GAAP measure) is set forth
      below.



                                                       Three Months Ended
(In thousands)                                              March 31,
                                                        2022          2021

Net cash flows provided by operating activities $ 37,015 $ 22,618
Acquisition of property and equipment

                    (2,715 )     (1,561 )

Settlement on derivatives not designated as hedges (1,390 ) (1,633 )
Free cash flow

                                       $   32,910     $ 19,424



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 Prime Fitness program, and the
ultimate medium- and long-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 compared to pre-pandemic periods.

Executive Overview of Results

The key financial results for the three months ended March 31, 2022 are:

   •  Revenues from continuing operations of $127.5 million for the three months
      ended March 31, 2022 compared to $108.1 million for the three months ended
      March 31, 2021.



   •  Pre-tax income from continuing operations of $8.7 million for the three
      months ended March 31, 2022 compared to $27.6 million for the three months
      ended March 31, 2021. Pre-tax income for the three months ended March 31,
      2022 includes:



      o  $22.4 million of unrealized losses related to our equity ownership in
         Sharecare, compared to $0 for the same period in 2021;


      o  $7.0 million of interest expense compared to $10.8 million for the same
         period in 2021;


      o  $5.7 million of unrealized gains related to de-designated swaps, compared
         to $1.1 million for the same period in 2021;


      o  $2.8 million of marketing expenses compared to $1.2 million for the same
         period in 2021; and


      o  $1.7 million of integration, project, and CEO transition costs compared
         to $1.3 million for the same period in 2021.


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Results of Operations

The following table sets forth the components of the consolidated statements of
operations for the three months ended March 31, 2022 and 2021 expressed as a
percentage of revenues from continuing operations.

                                                               Three Months Ended March 31,
                                                                 2022                2021
Revenues                                                             100.0 %             100.0 %
Cost of revenue (exclusive of depreciation included below)            61.5 %              53.0 %
Marketing expenses                                                     2.2 %               1.1 %
Selling, general and administrative expenses                           8.4 %               9.0 %
Depreciation expense                                                   2.5 %               2.5 %
Operating income (1)                                                  25.4 %              34.4 %

Interest expense                                                       5.5 %              10.0 %
Other (income) expense, net                                           13.1 %              (1.0 )%
Total non-operating (income) expense, net (1)                         18.6 %               8.9 %
Income before income taxes (1)                                         6.8 %              25.5 %

Income tax expense                                                     6.3 %               7.1 %
Income from continuing operations (1)                                  0.5 %              18.5 %



(1) Figures may not add due to rounding.

Revenues

Revenues from continuing operations were $127.5 million for the first quarter of
2022 compared to $108.1 million for the same period in 2021, an increase of
$19.4 million, primarily as a result of a net increase in SilverSneakers revenue
of $16.3 million driven by an increase in revenue-generating visits as the
effects of the COVID-19 pandemic lessened compared to the prior year period. For
the first quarter of 2021, the average monthly total participation levels of our
SilverSneakers members were significantly below historical levels. As a result,
revenues from PMPM fees represented 53% of SilverSneakers revenue for the three
months ended March 31, 2021, compared to 41% for the same period in 2022. In
addition, revenue from Prime Fitness increased by $2.4 million due to an
increase in active subscribers during the first quarter of 2022 compared to the
same period in 2021.

Cost of Revenue

Cost of revenue from continuing operations (excluding depreciation) (“cost of
revenue”) as a percentage of revenues increased from the three months ended
March 31, 2021 (53.0%) to the three months ended March 31, 2022 (61.5%),
primarily due to an increase in participation levels, which led to higher visit
costs as a percentage of revenues, particularly revenues from PMPM fees.

Marketing Expenses

Marketing expenses from continuing operations as a percentage of revenues
increased from the three months ended March 31, 2021 (1.1%) to the three months
ended March 31, 2022 (2.2%) primarily driven by decreased spending in the first
quarter of 2021 due to the COVID-19 pandemic.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations as a
percentage of revenues decreased from the three months ended March 31, 2021
(9.0%) to the three months ended March 31, 2022 (8.4%) primarily due to (i) a
decrease in share-based compensation expense primarily driven by (a) lower CEO
transition-related expenses associated with the termination of our former CEO in
February 2020 and the hiring of a new CEO in June 2020, and (b) lower expense
related to certain incremental long-term incentive awards granted in 2020 that

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vested in 2021. This decrease was mostly offset by an increase in legal and
other professional expenses, including expenses related to the proposed Merger
described in Note 16 of the notes to the consolidated financial statements.

Depreciation Expense

Depreciation expense from continuing operations increased by $0.5 million for
the three months ended March 31, 2022 compared to the same period in 2021,
primarily due to an increase in the amount of depreciable computer software.

Interest Expense

Interest expense from continuing operations decreased by $3.8 million for the
three months ended March 31, 2022 compared to the same period in 2021, primarily
driven by (i) a decrease in cash interest due to a lower average level of
outstanding borrowings in 2022 compared to 2021 as well as a reduction in the
LIBOR margin for Term B Loans under the Credit Agreement compared to the Prior
Credit Agreement and (ii) a decrease in non-cash interest related to accelerated
amortization of original issue discount and deferred loan costs that occurred in
the first quarter of 2021 due to voluntary prepayments at such time.

Other (Income) Expense, Net

Other (income) expense, net was $16.7 million for the first quarter of
2022 compared to ($1.1) million for the same period in 2021 due to (i)
unrealized losses on the Sharecare Equity Security totaling $22.4 million in the
first quarter of 2022, as further described in Note 10 of the notes to the
consolidated financial statements included in this report, and (ii) changes in
fair value of the de-designated swaps. The unrealized losses on the Sharecare
Equity Security of $22.4 million decreased earnings per diluted share by $0.44
during the three months ended March 31, 2022.

Income Tax Expense

See Note 6 of the notes to consolidated financial statements in this report for
a discussion of income tax expense from continuing operations.

Liquidity and Capital Resources

Overview

As of March 31, 2022, outstanding debt under the Credit Agreement was $380.0
million
, which represented $393.0 million of principal on the Term Loan B less
deferred loan costs and original issue discount, and we had $92.1 million of
cash and cash equivalents. In addition, we had working capital of $113.9
million
, including the Sharecare Equity Security of $27.4 million, which is
subject to restrictions on resale as further described in Note 10 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 March 31, 2022, availability under the Revolving Credit Facility totaled
$99.5 million as calculated under the most restrictive covenant. We believe we
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 the three months ended March 31, 2022 provided cash
of $37.0 million compared to $22.6 million during the three months ended
March 31, 2021. The increase is primarily due to increased cash collections from
accounts receivable, partially offset by higher payments related to visit costs
and reduced cash receipts from tax refunds.


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Cash Flows Used in Investing Activities

Investing activities during the three months ended March 31, 2022 used $4.1
million
in cash, compared to $3.2 million during the three months ended
March 31, 2021. This change is primarily due to increased capital expenditures
during the first quarter of 2022.

Cash Flows Used in Financing Activities

Financing activities during the three months ended March 31, 2022 used $1.0
million
of cash, compared to $67.4 million during the three months ended
March 31, 2021. This change is primarily due to voluntary prepayments under the
Credit Agreement of $1.0 million during the first quarter of 2022, compared to
$63.6 million under the Prior Credit Agreement for the same period in 2021.

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 September
2021
, our board of directors authorized the repurchase of up to $100 million of
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 $393.0 million under our
Term Loan B in quarterly installments of $1.0 million, payable on the last day
of each quarter until maturity on June 30, 2028, at which time the entire
outstanding principal balance is due and payable in full. As a result of
prepayments made in 2021 and 2022, our next quarterly installment of $1.0
million
is due in June 2023. We maintain eight amortizing interest rate swap
agreements maturing in May 2024, of which three qualify for hedge accounting
treatment and five are de-designated swaps. Based on our outstanding borrowings
under the Credit Agreement and the applicable interest rates as of March 31,
2022
, we estimate that our total interest commitments are $125.5 million, with
$24.2 million expected within the next twelve months. In addition, based on the
applicable interest rates as of March 31, 2022, we estimate that our total cash
settlement obligations for the de-designated swaps are $7.7 million, with $4.4
million
expected during the next twelve months. Actual future payments may
differ from estimates. Refer to Notes 8 and 12 of the notes to the consolidated
financial statements for further details on debt and interest rate swaps. Based
on our current assumptions with respect to the COVID-19 pandemic, as well as
geopolitical and macroeconomic conditions, including, among other things, the
outstanding principal on the term loan under our Credit Agreement and the
anticipated average monthly total participation levels of our members at our
fitness partner locations, we currently believe we will be in compliance with
the covenants under the Credit Agreement over the next 12 months.

Additionally, we have operating and financing leases for office space,
equipment, and a network server. Our two operating leases have remaining lease
terms of eleven months and 30 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 March 31, 2022, total future operating
and finance lease payments are expected to be $9.6 million and $0.2 million,
respectively. For the next twelve months, operating and finance lease payments
are expected to be $7.4 million and $0.2 million, respectively. The majority of
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 7 of the notes to the consolidated financial statements for
further details. During 2022, we are required to pay $0.5 million per month to a
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 there is significant uncertainty as to general economic and market
conditions for 2022 and beyond, including but not limited to impacts from the
COVID-19 pandemic, geopolitical turmoil, and macroeconomic conditions, 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

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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. Due to the
aforementioned uncertainty, 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.

Recent Relevant Accounting Standards

See Note 2 of the notes to consolidated financial statements included in this
report for discussion of recent relevant accounting standards.

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