Tivity Health, Inc. (NASDAQ: TVTY) Q1 2020 Earnings Call Transcript

Tivity Health, Inc. (TVTY) Q1 2020 earnings call dated May 06, 2020

Corporate Participants:

Bob Greczyn — Interim Chief Executive Officer

Steve Janicak — President of Healthcare Business Unit

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

Adam Holland — Chief Financial Officer

Analysts:

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Steven Halper — Cantor Fitzgerald — Analyst

Dave Styblo — Jefferies LLC — Analyst

Ryan Daniels — William Blair & Co — Analyst

Michael Petusky — Barrington Research — Analyst

Jailendra Singh — Credit Suisse — Analyst

Jessica Tassan — Piper Sandler — Analyst

Presentation:

Operator

Good afternoon and welcome to the Tivity Health First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session.[Operator Instructions] Please be advised that today’s conference is being recorded.[Operator Instructions]

To the extent any non-GAAP financial measure is discussed in today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated in accordance with GAAP in today’s news release, which is also posted on the company’s website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Tivity Health’s expected quarterly and annual operating and financial performance for 2020 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’ll turn the call over to the company’s Interim CEO, Bob Greczyn. You may begin, sir.

Bob Greczyn — Interim Chief Executive Officer

Thank you, operator. Good afternoon and welcome to everyone who has joined the call today. With me today are Steve Janicak, Healthcare Business Unit, President; Tommy Lewis, Chief Operating Officer and Interim Nutrition Business Unit, President; and Adam Holland, our CFO. Steve and Tommy will share with you more detail about how their business units have performed and adapted and Adam will cover our first quarter financials.

These are unprecedented times. I want to make sure to provide ample color around how Tivity Health is responding to the health and economic impacts of coronavirus. Tivity Health has worked to adapt during these times in order to provide our customers with innovative solutions. This resilience has allowed us to maintain and enhance our business, as well as serve our customers during one of the most difficult times in memory.

We had a solid start to 2020 with both our Fitness and Nutrition businesses. As coronavirus began to significantly impact businesses in mid-March, we were quickly able to adapt our go-to-market strategies and that action, combined with our initial strong performance, led us to deliver a solid Q1 performance. While we faced the challenges presented by this emerging pandemic, I could not be more proud of the creativity and compassion shown by our colleagues. Tivity Health has been nimble, delivering solutions on both sides of our business. We have worked with our health plan partners to keep their membership safe and active. We’ve also been able to better meet the needs of our Nutrition customers during this time. This was all accomplished while transitioning 1,000 colleagues to work at home without impacting our service to customers.

On the Fitness side, we have quickly expanded our digital offerings and delivered an enhanced virtual exercise class platform. This will be a part of our core offering, even after the pandemic subsides. Tivity Health has shown that SilverSneakers, Prime and WholeHealth Living are focused on health, activity and social engagement even if traditional channels are disrupted. In addition to our virtual exercise platform, we are also delivering free senior exercise programming on Facebook Live, averaging 50,000 participants per session. We view this as both an important public service and a means of expanding the reach of the SilverSneakers brand.

On the Nutrition side, we’ve delivered offerings that are more focused on our nationwide capability to deliver food directly to customers’ homes. This is important as people have been sheltering at home and avoiding public shopping experiences. We have also added greater variety to our product bundles, which has been well received and focused more on a la carte items, nutrition bars, and shakes. As a result, we’ve been able to build on a good Q1 with April sales consistently meeting or exceeding expectations.

We have taken action for strength in cash preservation and cut costs to reduce the financial impacts of coronavirus. These actions have included difficult but necessary furloughs of approximately 125 colleagues, as well as salary cuts of 25% for another 125 colleagues including all executives. Additionally, the Board will forego cash compensation. These actions are planned to continue for at least the next four months ending in August. We believe these proactive cash management initiatives will be additive to cash by over $40 million for 2020, including taking advantage of applicable tax provisions of the CARES Act to further enhance liquidity. We will continue to be diligent in our actions to ensure the long term success of the company.

As noted in our press release, the Board has decided to explore strategic alternatives for the Nutrition business, including a possible transaction and has engaged Lazard as its financial advisor. Since this past February, the Board has been engaged in a comprehensive review of Tivity Health’s long term strategy, including the company’s core capabilities and the ability to best deliver increased shareholder value through actions that would improve our balance sheet and best focus our team on the creation of value. Our Nutrition business delivered results ahead of our expectations this quarter. However, we believe there is unrealized value, which is what drove this decision. There are, of course, no guarantees of any particular outcome of this strategic alternatives exploration.

In the meantime, we will continue to operate the Nutrition business and maximize all opportunities to better serve our customers, grow our business and prepare for a successful 2021 diet season. Importantly, the company’s search for the next CEO of Tivity Health is well underway. Candidates have been identified and the interview process is nearing completion. We’ve been pleased by the interest in leading our company from a group of highly qualified individuals. We expect to successfully conclude this search in the near term.

Before I turn the call over to Steve, I want to once again emphasize that our results from the first 10 weeks of 2020 and for Q1, reflect the strength of our business segments and the ingenuity I have seen from our team, showcases the power of our brands and partnerships with our customers. Now, I’ll turn the call over to Steve Janicak to share more details about the Healthcare Business Unit. Steve?

Steve Janicak — President of Healthcare Business Unit

Thank you, Bob. As Bob mentioned, we had a solid start to the first quarter. Compared to the same period in 2019, January through February, we saw significant positive increases to key metrics for our SilverSneakers and Prime businesses. For SilverSneakers, revenues were up approximately 14%, participation was up to 8.5% in 2020 compared to 8.1% in 2019 and visits were up approximately 16%. Prime revenue was up 18.5% and Prime subscriptions were up 9.5%.

Starting in mid-March, however, we began to see the impact of the pandemic on our business. Partner locations began closing across the country and before the end of the first quarter, nearly all locations were shuttered under orders for people to stay home. When those orders were issued, our team members pivoted to identify alternative ways to keep our senior population active, while ensuring their safety. I’ll walk you through some of these.

SilverSneakers launched virtual FLEX classes hosted by instructors in our national network. When we started this about a month ago, we had only hosted 500 virtual events in our history. But to date, we’ve hosted over 7,000 events. Virtual classes keep home bound SilverSneakers members safe from exposure, while maintaining a live instructor-led experience with the energy and social interaction that they know and enjoy. We received numerous emails thanking us for continuing to provide SilverSneakers members with an opportunity to stay active and connected. The strength of the SilverSneakers brand is evident in the popularity of our Facebook Live Events. We have averaged over 50,000 participants per event with over 1.3 million total views to date. Echoing Bob’s sentiment, we view these free events as a public service, as well as an opportunity to strengthen and expand the reach of the SilverSneakers brand.

We are pleased that our health plan partners and others have looked to Tivity Health for creative approaches during this time. When the pandemic hit, some of our health plan partners went to work ensuring that seniors would continue receiving food, while home bound. I’m proud to say that we were ready and able to support our health plan partners with their initiatives by developing healthy bundles of meals, snacks and shakes for home delivery. As a result, a number of our health plan partners bought our entire inventory of Wisely Well meals. We are also offering meal bundles directly to our SilverSneakers members who have enrolled in our portal. Although, this has a relatively small revenue impact, it illustrates the power of our partnerships and full power of the platform of our brands.

I also want to share another instance where a partner asked us to help and how we innovated. Walmart, who we have worked with since 2018, called us to help them with a challenge they were having to support Walmart associates and their nationwide network of distribution centers. We developed stress management programs that Walmart made available across their distribution centers.

Turning to Prime, we met our enrollment goals in both January and February but when COVID-19 cases began increasing in March, we started to feel the impact with reduced enrollment and increased suspensions. We quickly engaged our Prime members to help them stay active through a lower cost virtual offering, which has been positively received. As I conclude my comments on the Healthcare Business Unit, it’s important to remember that our Fitness business enjoys strong macro tailwinds. Medicare Advantage membership is growing and health plans are providing members with benefits that they value like SilverSneakers. The health benefits of staying active as you age are well-established and SilverSneakers is the leading fitness partner in this space. With that, I’ll turn the call over to Tommy Lewis to discuss the Nutrition Business Unit. Tommy?

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

Thank you, Steve and good afternoon everyone. While the revenue growth of the Nutrition business is down year-over-year, we saw some great momentum in the first quarter. Let’s start with the solid performance of our Nutrisystem Direct-To-Consumer business during diet season 2020. Our program, messaging and offers seem to be resonating with consumers. We experienced a step down in program starts during the second half of March as COVID-19 upended the lives of many Americans. Despite the late March impact, the Nutrition business, led by the flagship Nutrisystem brand, exceeded the top end of our revenue and EBITDA guidance range for the first quarter indicating a strong start to the year prior to COVID-19.

From an operational perspective, we feel good about the positive momentum for the first quarter. Despite the March pressure, we are pleased with our growth in new customer starts for Nutrisystem in Q1 where we were up year-over-year. We expect the growth in new customers to continue throughout the year. You will remember that we told you on the fourth quarter earnings call that we were going to increase average selling price and we were successful in doing so. Although our Q1 average selling price was down year-over-year, we were able to successfully increase prices on a sequential month basis in the quarter. In addition, our Men’s Program [Phonetic] continues to perform well with Men’s Program starts up 12% year-over-year, driven in part by the launch of our new men’s campaign for diet season 2020.

In April, the cost to acquire customers continues to be favorable, driven by efficient media spending, communicating the right messaging and offers that resonate with customers and effective conversion, as well as favorable market conditions for media buys. We continue to shift our media mix more heavily towards digital with linear TV spend down significantly year-over-year, thus expanding our reach at a lower cost and our other key metrics are on track with our expectations, revenue per customer, length of stay and customer satisfaction rates. From a broader perspective, when we began to feel the pressure of COVID-19 changing Americans’ priorities, our marketing group was able to quickly pivot our messaging and offers to focus on our ability to deliver healthy meals, shakes that support immunity, and snacks. Home delivery of meals is a key competitive differentiator for Nutrisystem.

In addition, we collaborated with Amazon, Walmart and our supply chain partners to ensure we could support our customers without interruption. With the launch of our new TV spots and digital creative, emphasizing home delivery, new program starts in late March and through April began to improve. We closed out March on a positive note and led into a good April and spring selling season. We believe this demonstrates that Nutrisystem DTC is trending positive in new customer growth and better marketing efficiency. I’m pleased with our ability to enhance the Nutrisystem brand by quickly leaning into the need for home-delivered healthy meals and pantry stocking. Further, I’m proud of the flexibility we showed in standing up new creative with digital promotions and TV spots that resonate with customer needs in these times.

We believe that when we begin to recover from the pandemic, many consumers will realize that they put on pounds from cocooning, stress-eating, snacking, lack of exercise and reduction of outdoor activity, which could provide an opportunity for us to generate demand. Looking ahead, Nutrisystem is already a natural beneficiary of underlying macro trends such as obesity, chronic conditions and health and wellness and we’re hard at work executing our strategy to respond to these consumer needs.

In conclusion, we began the year building momentum for our flagship Nutrisystem brand, growing new customer starts, improving our average selling price, expanding digital media and then driving messaging for the home-delivered healthy meals to our customers, diversifying our message beyond diet and enhancing our brand equity along the way. I’ll now turn the call over to Adam Holland for a review of the financials. Adam?

Adam Holland — Chief Financial Officer

Thank you, Tommy. And good afternoon everyone. I will cover additional information related to our first quarter results, balance sheet and liquidity fortification, as well as our decision to withdraw 2020 guidance.

Our Q1 Healthcare segment generated revenues of $159.7 million, an increase of 2% over the same period last year. SilverSneakers revenue was approximately $122 million, down 1% compared to last year due to fewer revenue generating visits in March related to fitness center closures. We ended the quarter with 16.2 million health plan members eligible for SilverSneakers, with 3.6 million enrolled. Average monthly participation for the quarter was 7.8%, down 40 basis points from last year. And total visits for the quarter were 25.4 million, down about 4% compared to last year.

Moving onto Prime, we generated $33 million of revenue in Q1, an increase of 14% over last year. Prime subscribers increased by approximately 13,000 compared to the end of Q1 2019 and we ended the quarter with 339,000 subscribers, which includes approximately 10,000 members who decided to suspend their accounts in March. In summary, we started Q1 strong then the wave of fitness center closures in mid-March drove down our SilverSneakers visit fee revenue, although these closures also lowered our variable costs since our fitness centers are predominantly paid on a per-visit basis. This translated to $30.2 million in Healthcare Unit adjusted EBITDA, which was a 15.7% increase over last year.

I’ll turn now to the Q1 results of the Nutrition segment, which exceeded guidance for both revenue and adjusted EBITDA. First quarter Nutrition revenues came in at approximately $178 million, a 209% increase compared to the same quarter last year. As a reminder, we closed on the Nutrisystem acquisition on March 8, 2019, therefore Q1 2019 results are from March 8 through March 31, 2019. Although, on a full-quarter comparison basis, Nutrition segment revenue declined 7% year-over-year. That said, the Nutrisystem brand DTC business performed better than expectations, generating approximately $156 million in revenue, down just 1% compared to the prior year on a full-quarter basis. Nutrisystem DTC new customer revenue remained consistent year-over-year at $95.1 million and reactivation revenue was down 2% at $60.5 million. The new customer revenue was driven by a 3.7% growth in new customer starts and an increase in length of stay, both of which were partially offset by a decline in average sales price.

Moving on, South Beach Diet revenue was $12.8 million, down 30% year-over-year and QVC and retail contributed a combined $9.6 million in Q1 revenue, down 41% year-over-year. First quarter Nutrition adjusted EBITDA showed a loss of $1.4 million, better than our expectations for several reasons. First, we successfully tested and implemented price increases in the DTC businesses. Second, while marketing as a percentage of revenue was higher in Q1 year-over-year, we have seen efficiency gains in our DTC businesses. And third, we are effectively managing our G&A spend on both a dollar and a percentage of revenue basis.

In regards to the Q1 impairment charge noted in today’s press release, the COVID-19 pandemic has driven adverse and rapidly changing economic conditions. In March 2020, we experienced a sudden closure of our fitness center network, followed by a significant decline in our market capitalization. These factors, together with a change in the market based assumptions used in our cost of capital calculation, drove our decision to perform an impairment evaluation. Following this assessment, we recorded a non-cash impairment charge to both the Nutrisystem tradename and goodwill. The decline in fair value was primarily driven by the change in market-based assumptions used in our cost of capital calculation. We do not expect these impairment charges to have any impact on current or future operations, nor affect our liquidity, cash flows from operations or compliance with the financial covenants set forth in our credit agreement.

Turning to our Q1 balance sheet and cash flow, we ended the first quarter with cash on hand of $83 million, which includes cash from our revolving credit facility. In late March, to proactively maintain financial flexibility, we made the decision to borrow $75 million on our revolving credit facility as a precautionary measure with $47 million still available to borrow at the end of Q1. It is our intention to pay this back when our fitness center network largely reopens and when we have a better sense of our membership participation levels. We ended Q1 with $1 billion of term loan debt and in February, we paid down $20 million in term loan principle, meaning our next quarterly amortization payment is not due until June 30, 2021. We ended the quarter in compliance with our maintenance covenant ratio, which was 4.25 times below our required ratio of 5.75 times as calculated under our credit agreement.

Our free cash flow for Q1 was strong at $42.1 million, reflecting the positive operational performance of both business units, coupled with a favorable working capital dynamics. As Bob mentioned, during March and April, we instituted a programmatic approach to strengthen our liquidity by reducing or eliminating costs across both business units. We are laser focused on prudently managing our discretionary expenses to ensure we continue to have robust liquidity and runway to operate both businesses with confidence throughout the COVID-19 crisis.

With regard to our credit facility, we believe we will be in compliance with the net leverage ratio covenant over the next 12 months. Our belief is based on certain key assumptions, including the temporary closure of fitness locations and the average participation level of our members, once these locations reopen as well as other factors.

Finally, as mentioned in our press release today, given the rapidly evolving nature of the COVID-19 pandemic, we are withdrawing our guidance for 2020. We will continue to periodically report the results of our operations and monitor ongoing developments. And with that, I’ll turn the call back over to Bob. Bob?

Bob Greczyn — Interim Chief Executive Officer

Thank you, Adam. As the country emerges from the pandemic and life begins to look a bit more normal, I’m confident with the backdrop of our favorable end market trends, our significant brand positions, and trusted health plan relationships, that Tivity Health’s business will thrive. I think the advances that we have made in at-home models of food delivery and virtual fitness have opened up new pathways for us to drive additional value in the future. We’ll now open the call to questions. Operator?

Questions and Answers:

 

Operator

[Operator Instructions] Your first question comes from the line of Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Great. Thanks very much for taking my question. I know it’s obviously hard to be giving any kind of an outlook for this year. So certainly makes sense that you pulled the 2020 guidance. But can you help walk us through a little bit of the dynamics, especially on the fitness side of the business? Just with, obviously, revenue presumably down a bunch with all of your fitness centers closed, but then you did mention that most of your costs there are variable, so seeing that come in as well, can you give us just a general sense of the impact to revenues, to margins, to cash flow, just here in the second quarter as long as the vast majority of your fitness network remains closed.

Bob Greczyn — Interim Chief Executive Officer

Adam, can you deal with that question or perhaps Steve can join in?

Adam Holland — Chief Financial Officer

Sure, happy to — hey, Alex, happy to take questions. Alex, I don’t want to get into forward-looking statements, given that we did withdraw the 2020 guidance. But I’ll maybe take you back to what we said in February on the earnings call. And the SilverSneakers model, if you recall, is really broken up between two different constructs. 75% of our eligible lives are under what we call a hybrid contract, where the majority of that revenue is from a visit fee, meaning that we get paid from a plan when a visit occurs at a gym. There is also a small PMPM fee associated with that as well. The remaining 25% of eligible lives is under a pure PMPM construct.

And so if you think through the dynamic of the rest of the year, when gyms are closed, the piece of the revenue that’s going to be most impacted for SilverSneakers will be the visit fee revenue. And while gyms are closed and visits are not taking place, that revenue will not occur. Now, similarly, as I said in the prepared remarks, we won’t incur visit fees related to those gym visits because they’re not happening. So there is a little bit of an offset there. But so far, we are receiving payments from plans under the PMPM, we’ve been paid up through April and relationships are strong and we’re hopeful if the gyms do start to reopen, and we have seen some reopen here in the last few weeks, that we’ll be able to report more in due course. Steve, anything else you’d like to add?

Steve Janicak — President of Healthcare Business Unit

Sure, Adam. Just one other thing is, of course, we want our seniors to remain safe by all means, but what we are seeing now is, when we see some of these markets reopen, and we see some of the gyms reopen, what we did is, prior to that, we did some research of our SilverSneakers members to see when and how quickly they would go back into the gyms. The research was very positive and people were saying, as soon as it’s safe, we will go back. And actually what we’re seeing is, as these markets are opening and gyms are opening, we’re starting to see people back in the gym and executing on that research that we have. So early in the process, but positive momentum.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Okay. That’s really helpful. Thank you for that. And then just wondering if you could talk to us a little bit about the economics of the virtual content that you’ve been offering for SilverSneakers, if you could walk us through just from a high level, how you get paid for those content views and any costs associated with that. And then I think you mentioned in the prepared remarks that you’d be looking to have a little bit more of a virtual content presence in the future even after the gyms reopened. Is that just motivated by the success that you’ve seen with virtual content or are there financial implications for that as well? If there’s anything you can share with us about the virtual content would be helpful.

Bob Greczyn — Interim Chief Executive Officer

Steve.

Steve Janicak — President of Healthcare Business Unit

Sure, Bob. Great question. So let me — most — trying to break your question down. Yes, we had to pivot and respond with virtual. We had it out there but we were — our team was able to pull together and expand the offering going forward. It’s very well received from our health plans and what we’re seeing is it’s really early in the process and we are receiving some payments on it. We’re not exactly sure how all of that is going to play out and what is actually going to be charged. As we look through and try to figure out what does it look like today, what is it going to look like tomorrow, but then what percent of our revenue going forward is actually going to come from this.

A good portion of what we do in SilverSneakers and our brand is around our social interaction and our social connectivity. That piece is important to seniors as well. So we have to wait and see as, are people going to move more back into the gym quicker to get their social interactions? Are they going to use more virtual? Is it going to be a combination thereof? So early in the process, but we’ll have word probably as we get closer to our — on our August earnings call.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

That’s terrific. Well, thank you very much. And all the best to everyone over at Tivity.

Bob Greczyn — Interim Chief Executive Officer

Thanks, Alex.

Steve Janicak — President of Healthcare Business Unit

Thanks, Alex.

Adam Holland — Chief Financial Officer

Thanks, Alex.

Operator

Your next question comes from the line of Steve Halper with Cantor Fitzgerald. Your line is open.

Steven Halper — Cantor Fitzgerald — Analyst

Hi. Appreciate the detail on the hybrid and pure PMPM. On the offset on the visit, what would typically historically be the payment to the gym on a — for the visit, the variable cost that goes away?

Bob Greczyn — Interim Chief Executive Officer

Adam, you might want to deal with that.

Adam Holland — Chief Financial Officer

Yeah, sure. Hey, Steve. It’s Adam. Thanks for the question. Predominantly, the cost of sales you see in the Healthcare business, the vast majority of that cost of sales relates to gym visit fees. And I’d say that when there are no visits, there is a very immaterial amount leftover that would have to be paid to the gym. So, no gym visits means no fees for the large part of a given quarter.

Steven Halper — Cantor Fitzgerald — Analyst

Got it. Thanks for the — that’s helpful. Thank you. The other question, so when you think about the economics and you said you’re getting paid something for the virtual, wouldn’t the payers feel like, “oh! at least I’m getting something from the PMPM”. So wouldn’t you just, sort of, in this temporary sort of period — you’ll give that away because you’re not — you don’t have to pay the gyms, right, for the visits with the virtual.

Bob Greczyn — Interim Chief Executive Officer

So, Steve, this is Bob. For those visits, under the PMPM arrangements, there is no charge for those virtual visit. That’s a part of what they’re paying us for.

Steven Halper — Cantor Fitzgerald — Analyst

Okay. So what was the comment around, we’re getting some payments on the virtual side, for?

Bob Greczyn — Interim Chief Executive Officer

We’re getting payments on the virtual side from the hybrid models where we would normally be paid per visit. And please, anybody check me if I’m wrong on that.

Adam Holland — Chief Financial Officer

No, Bob, you’re absolutely correct.

Steven Halper — Cantor Fitzgerald — Analyst

So, in theory, that would even have a higher gross margin, right, than the normal gym business. So virtual is good.

Steve Janicak — President of Healthcare Business Unit

Virtual is good, but virtual is not going to offset completely all of the visits that we have lost as a result of all of our other locations being shut down.

Steven Halper — Cantor Fitzgerald — Analyst

Got it. Okay. Thanks, I appreciate the commentary.

Steve Janicak — President of Healthcare Business Unit

You’re welcome, Steve.

Operator

Your next question comes from the line of Dave Styblo with Jefferies. Your line is open.

Dave Styblo — Jefferies LLC — Analyst

Hi, there, good afternoon. Thanks for the question. I think I heard the comment that your actions on the furloughs and compensation reductions and so forth were collectively worth about $40 million of savings for the year. I was just curious, did — how much of that landed in the first quarter?

Bob Greczyn — Interim Chief Executive Officer

Adam.

Adam Holland — Chief Financial Officer

Yeah, hey, Dave. I can take that. It is an annualized number. Everything has been executed to. So there is components such as tax — cash tax savings with the CARES Act. But the cash will have to be — we’ll have to follow that and get that in. But the actions have been taken and we expect it to be fully realized. It’s also a combination of lowering our capex outlays for the year. So these are all things that are inside of our control and have been done. We are — we think they are meaningful and will be helpful. And so, we will update you as we go and our progress to that next quarter.

Dave Styblo — Jefferies LLC — Analyst

Okay. I was just trying to understand that I imagine some of that landed in the first quarter and that’s perhaps expanding some of the higher EBITDA outperformance there. Is that fair to say?

Adam Holland — Chief Financial Officer

Yeah, a little bit. It was very late in the quarter, very end of March, some of that instituted. I’d say, the bulk of it was probably in April. So you’ll probably see more of that show up in components like SG&A when you get into Q2 versus Q1.

Dave Styblo — Jefferies LLC — Analyst

Got it. Okay. And then, if I’ve taken some of the back-of-the-envelope math of what you guys have said through the first couple of months of February on a year-over-year comparison, my rough math suggests maybe the month of March was down 20% from a revenue standpoint year-over-year in the Fitness business. Is that a reasonable amount and is that — I don’t know, I know you don’t want to go forward looking too much, but is that roughly a fair proxy for to think about the revenue pressure that you might experience while we’re in this state of complete lockdown?

Adam Holland — Chief Financial Officer

Well, it’s tough to say, Dave, because March still had robust visits until we didn’t. It was very — it wasn’t as gradual as I thought it would be. It was very sudden. As matter of fact, I think, actually our visits month-over-month for March were down like 47%, which got you kind of down to that 4% number for the quarter. So I think it’s just going to be variable depending on the gym network and it is rapidly changing out there. We have some States reopen, as Steve mentioned, we already have some members who have returned, albeit in very small amounts. And it’s just — it’s too soon to tell. And just, in this environment, we thought it would be prudent to withdraw guidance at this point and as circumstances change, we’ll certainly rethink that decision.

Dave Styblo — Jefferies LLC — Analyst

Okay. And the last one from me would just be on the Prime business, because I think within SilverSneakers, there some natural counter offsets because of the degree of fixed revenue that you get from the plans, but in Prime, I think a lot of that revenue and EBITDA could quickly go away if those members cancel the plans. I’m curious to get a better sense of how many have cancelled, I think maybe you’ve talked about some delays or suspensions. But are you not seeing folks just completely back out of it? And then how do you think about that ramping back up in an environment where I think maybe a lot of these Prime customers are ones who would travel a lot, would enjoy the benefits of being at different gyms across the U.S. Is that — is there an element where you have thought about what that might return to in a normalized environment?

Bob Greczyn — Interim Chief Executive Officer

Steve.

Steve Janicak — President of Healthcare Business Unit

Yeah, so let me kind of walk through and take that one apart as well. Reach back — so as we started to see the gyms closing, we really reached back out to our Prime subscribers or active members and we gave them options. We said, you could suspend your account, you could take advantage of a reduced fee for three months with a virtual option or you could cancel. So it’s through the end of March, the number that Adam quoted of how many subscribers we had actually included 10,000 that were suspended. Now as time goes on and if the gym stay closed longer, we may see that increase a little bit, but right now, it’s holding pretty steady. We’ve actually had a few — and the operative word is “a few” members calling to turn their accounts back on and come out of suspend as the States are opening up. So again, I think it’s early to tell. We haven’t seen the onslaught of cancellations, but we haven’t seen an onslaught of new opportunities either.

Dave Styblo — Jefferies LLC — Analyst

Okay. Thanks so much.

Steve Janicak — President of Healthcare Business Unit

Sure.

Operator

Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.

Ryan Daniels — William Blair & Co — Analyst

Yeah, thanks for taking the questions and for all the details thus far. I’m curious how your marketing efforts within the Healthcare division have changed and will change going forward to continue to engage seniors, both bringing them back in the fall to make them feel comfortable when we do see these stay-at-home orders subside and for those that are not, to get them comfortable doing at-home on-demand activities.

Steve Janicak — President of Healthcare Business Unit

Sure, I’d be happy to answer that, Ryan, good question. So what we’re doing right now is everything that we’re doing is from a marketing standpoint is done from a digital. it’s either email, social media where we’re communicating the options that people have. We’re actually in the process of developing a plan right now for both SilverSneakers and Prime and how we’re going to get people back engaged and back into the gym and active again. Now, again as we said before, our main goal is to make sure our senior stay healthy, but a lot of that is going to be driven by what’s happening at the local level and the State level as to the precautions that have to be taken before someone could go into a gym and what is being able to be done within that gym. So we’re evolving right now through those whole plans, we’re working hand-in-hand with our health plan partners to develop those plans and they are eager to get their folks back in, but they also want to make sure that they do it when it’s safe and the members are healthy and they are also taking the precautions that they need.

Bob Greczyn — Interim Chief Executive Officer

And, Ryan, this is Bob. If I could add just a touch to that, I think Steve is exactly right. We’re not going to do anything that undermines our seniors being safe. I will tell a very quick story, a senior leader at one of our health plan partners who went out of his way to tell me that his mother had just done one of our virtual visit and that she’d loved it. So I think there is very strong acceptance out there of these virtual visits, but I know that people are anxious to get back to the gym when it’s safe.

Ryan Daniels — William Blair & Co — Analyst

Great, thank you for that. And then, can you offer a little bit more color on the Board’s decision to pursue a strategic alternative potentially for the Nutrition business? I guess the question would be one that some of the damage is obviously already done and the turnaround is underway. But I’m curious if this is an asset you no longer think integrates as well with the core Healthcare business in regards to working with payers, working to provide post discharge meals, that type of things. Is that a reflection of any thoughts on there or is it just wanting to clean up the balance sheet, given the current environment or things of that nature? Just — I think more color there would be helpful. Thanks.

Bob Greczyn — Interim Chief Executive Officer

Sure, sure. I’ll take a shot. So I think once we had a number of management changes in the company earlier this year, the Board took the opportunity to do a complete review of our strategic plan and what our go-forward looked like, and there is a clear recognition that since we bought Nutrisystem, it has not performed as we had anticipated that it would. And as a part of that, the Board determined that the best path forward was to announce an exploration of strategic alternatives and to engage Lazard as our financial advisor, but that doesn’t necessarily mean that a transaction will happen but it does mean that we’re open to that and any transaction that we do would have to be credit enhancing for the company. In the event that there is a transaction, Tivity Health would continue to own the Wisely Well brand and we would hope to work with — in the event a transaction occurred, we would hope to work with Nutrisystem on a going forward basis to have them continue to manufacture that product and work through us under that arrangement. I’d also say that interest in the health plans is still very much there in Nutrition. And I’ll let Steve perhaps expand on that.

Steve Janicak — President of Healthcare Business Unit

Sure, Bob. So as it relates to that, we’re having a very strong robust sales pipeline for not only SilverSneakers but for our Wisely Well products as well. So we haven’t seen really a slowdown from that standpoint. Our health plans are still interested in it. Right now, they’re focused a lot more on how do we get meals to our seniors that need them right now, which we’ve been able to provide for several of our health plan partners. And then as they’re working on their 2021 bid submissions, they’re including Nutrition in that for both discharge, primarily. So good opportunity there. More to — we’ll have more details to communicate in our August earnings release.

Ryan Daniels — William Blair & Co — Analyst

Okay, thank you. Those are very helpful data points. Thanks.

Steve Janicak — President of Healthcare Business Unit

You’re welcome.

Operator

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

Michael Petusky — Barrington Research — Analyst

Hey, guys. Lot’s of good information, thank you. I didn’t catch it, if you mentioned it, I did hear that in Prime that you guys offered members a — one of the options was reduced fee for virtual content. How many — what percentage of Prime folks actually took you guys up on that?

Adam Holland — Chief Financial Officer

Yeah, Mike, I don’t have that at my fingertips. I’ll get back to you on that answer.

Michael Petusky — Barrington Research — Analyst

Okay. And then I just wanted to go — I wanted to go back to SilverSneakers. So if I’m understanding it, the 25% per member, per month eligibles, you guys are currently getting 100% of that action just essentially for providing the digital option. Is that correct?

Steve Janicak — President of Healthcare Business Unit

Yeah, it’s that and the network as well. I mean, the network has not fully reopened for sure, but there is a chunk of that it has reopened in late April. So I think that’s the important thing to come away here is that if we’re in a period now where reopening that PMPM is still going to give access to members of gyms when those members are ready to go back.

Michael Petusky — Barrington Research — Analyst

Right. But I guess what I’m getting at, have any payers tried to renegotiate the PMPM aspect of these contracts, whether it’s the hybrid or the straight PMPM?

Steve Janicak — President of Healthcare Business Unit

Yeah, quite…

Bob Greczyn — Interim Chief Executive Officer

All of our…

Steve Janicak — President of Healthcare Business Unit

Go ahead, Bob.

Bob Greczyn — Interim Chief Executive Officer

Go ahead, Steve.

Steve Janicak — President of Healthcare Business Unit

No, no, no.

Bob Greczyn — Interim Chief Executive Officer

Mike, I would say, that all of our contracts are intact and we’re fully paid up through April.

Michael Petusky — Barrington Research — Analyst

Okay, all right. And then in terms of the cost cuts, you guys — I think I heard 125 colleagues taking 25% pay cuts including execs and then 125 furloughs, no true headcount permanent reduction, but just 125 furloughs. Is that correct?

Bob Greczyn — Interim Chief Executive Officer

It’s 125 furloughs, Mike.

Michael Petusky — Barrington Research — Analyst

Okay, all right. And what would be the…

Bob Greczyn — Interim Chief Executive Officer

And we’ll bring those people back or at least most of them, we’ll bring them back as the gyms begin to open up and we need them back out in the field servicing the gyms and other parts of our customers.

Michael Petusky — Barrington Research — Analyst

Okay. And then I’ll get Tommy in on the action. South Beach seems to actually have a better — I perceived that business to be more of a mess than the results seemed to indicate. Can you just sort of comment on what you’re seeing there or what you’re trying to do there?

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

Yeah. Hi, Mike. I hope you’re well. Thanks for the question. First off, South Beach Diet met our expectations for Q1, so let me say that. We continue to see pressure in South Beach, it’s primarily a scale issue at this point, acquisition costs are higher, reacts are lower because we don’t have as many alumni that have gone through the program. But after January, what we’ve done with South Beach was pivoted heavily, virtually, all digital. So all of our media spend and promotion is on the digital front. So we’ve been able to improve EBITDA significantly. So now we’re managing EBITDA, while we currently evaluate the business alternatives. We just haven’t cracked the code yet on the model.

Michael Petusky — Barrington Research — Analyst

Yeah, so the rates there though we’re only down 3%. I mean that to me — I guess, I was perceiving that to be in worse shape than that. I mean is your early second quarter tracking fairly close to flat?

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

Yeah, I don’t want to comment on forward-looking, since we retracted guidance but, I mean, clearly, revenues are down year-over-year. If you look at the first quarter, it’s down about 30%, as Adam alluded to in the remarks. We’re not happy with that. We’d like to see that business growing. But we haven’t cracked the code yet. So we’re working on the business model.

Michael Petusky — Barrington Research — Analyst

I’m sorry, South Beach was down 30%?

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

That’s right.

Michael Petusky — Barrington Research — Analyst

Okay, sorry. I misheard earlier. Okay, thanks guys. I really appreciate it.

Tommy Lewis — Chief Operating Officer and Interim President, Nutrition Business Unit

Thank you, Mike.

Operator

[Operator Instructions] Your next question comes from the line of Jailendra Singh with Credit Suisse. Your line is open.

Jailendra Singh — Credit Suisse — Analyst

Hey. Hello, everyone. Just a quick clarification. Adam, you mentioned that you had — the company had 15.2 million eligibles at the end of Q1. That was down sequentially slightly from 15.3 million at the end of Q4 and up only like 1%. I mean, you guys talked about growth of 7% to 8% in 2020. Just wondering like why at least eligibles number didn’t go in line with at least MA market. Any thoughts on that?

Adam Holland — Chief Financial Officer

Yeah, there is couple of pieces. It certainly came in where our expectations were, Jailendra. Recall, we had age-ins, our guidance was to end the year in 2020 close to 16.4 million eligible. We ended Q1 here with 16.2 million. And so what we will see as seniors age-in throughout the year, that eligibility number will grow and we feel like we’re on target to hit that 16.4 million eligible number.

Jailendra Singh — Credit Suisse — Analyst

Okay. And then following up on Mike’s question around the PMPM contracts. To be clear on that, I mean, so these contracts do not include any language around that, okay, you have to have minimum these number of visits at least annually before you are eligible for the PMPM revenue, right? There is no constraint or criteria in contracts, right, like that for a minimum number of visits?

Steve Janicak — President of Healthcare Business Unit

Yeah, this is Steve. We don’t comment on specific contracts with our clients.

Jailendra Singh — Credit Suisse — Analyst

Okay. But, I mean, in terms of renewals, any of these contracts are coming up for renewal in near-term? And I know you have got date till April, but any risk of these contracts getting repriced at lower level because of the low utilization? I mean, just wondering if any thoughts on the — any of these contracts coming up for renewal in real term.

Adam Holland — Chief Financial Officer

No, the contracts are in force, the renewals that Steve is talking about just earlier relate to the contract period that will start in January of 2021. So the contracts we have now are fully in force. And as Bob mentioned earlier, have been fully paid through April and the relationships and interaction — and this is the more important part, relationships and interactions in those plans have been very positive over these last two months. The seniors have had to socially isolate. A lot of them have leaned on to us to help engage those seniors through the digital platform to make sure that there is a touch stone there, while they’re at home and when the time is right, we’ll get them back into the gym.

Jailendra Singh — Credit Suisse — Analyst

Okay and then my last one. Can you remind us on your geographical exposure for your revenue? Does it primarily mirror the Medicare Advantage enrollment in the country or is it — and is it very similar on PMPM and hybrid contracts? Any thoughts on that? The idea is, because I mean, the way we are going to reopen, I mean the country will reopen will vary a lot by geography. Just trying to understand how your exposure stands in different markets.

Adam Holland — Chief Financial Officer

Well, it’s broad exposure. I mean we are in all the Lower 48 and we have 8 out of top-10 Medicare Advantage clients. So you could see their footprint and derive where we are in terms of visit membership. Steve, anything else you’d add on that?

Steve Janicak — President of Healthcare Business Unit

No, I think you covered it.

Jailendra Singh — Credit Suisse — Analyst

And PMPM, how did — both, I mean, pretty much similar, right, in terms of geographical exposure or are there any variances you will say that PMPM is heavily skewed towards certain geographies versus others?

Adam Holland — Chief Financial Officer

Yeah, there are some States that skew one way or the other. I’d say, that many of them are blended but just — you have to take into account that 75% of the 16-plus million eligibles are under a form of hybrid contract. So, we’re naturally going to lean — we’re going to lean towards that direction just because of the mix of the eligibles.

Jailendra Singh — Credit Suisse — Analyst

Okay, got it. Thanks.

Operator

Your next question comes from the line of Jessica Tassan with Piper Sandler. Your line is open.

Jessica Tassan — Piper Sandler — Analyst

Hi, thank you for taking my question. I just had one on the hybrid revenue. I know there’s a portion of that, that’s not related to visit volumes. Is that more of a start-up cost, is that or — sorry, a start-up and revenue that’s recognized in the first quarters that are kind of a ratable PMPM over the course of the year?

Adam Holland — Chief Financial Officer

It more behaves like a ratable PMPM. So to answer your question, that 75% of our revenue does not come from visits, because 75% of our contracts are in our hybrid, which means that a portion of that hybrid does have a PMPM component, that is per member per month, albeit at a smaller — a smaller piece, a smaller fee than what you would see in our pure PMPM contract.

Jessica Tassan — Piper Sandler — Analyst

Okay, thank you. And then just with respect to the hybrid contracts, just interested to know if or how COVID has kind of changed, if at all, your thinking with regards to the hybrid contracts versus PMPM and if you’ve had any conversations with health plans to just discuss the potential for moving some of those hybrid contracts back to more heavily weighted towards PMPM.

Steve Janicak — President of Healthcare Business Unit

So, Jessica, good question. I think at this point in time, it’s too early to tell. We have not had any of those conversations with our health plans. We have to wait and see how this all plays out, how long this is going to last. So right now, it’s kind of a wait and see. And again, excuse me, a little too early to tell.

Bob Greczyn — Interim Chief Executive Officer

And then Jessica, I would add that, no matter which direction you go on that equation, a lot of it depends on what’s going on in the market. I mean, certainly our hope and I think everyone’s hope is that the coronavirus is something that once we get rid of it will never come back, even though we know there’s probably going to be more waves of it.

Jessica Tassan — Piper Sandler — Analyst

Exactly. Okay, thank you. That’s helpful. I appreciate you taking the questions.

Bob Greczyn — Interim Chief Executive Officer

Thanks, Jessica.

Operator

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

Bob Greczyn — Interim Chief Executive Officer

Thank you, operator. I just want to say a final thank you to everyone for joining us this afternoon. Your questions have been great questions and we will look forward to catching up with each of you for any follow-up questions very shortly. Thank you again.

Operator

[Operator Closing Remarks]