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Tivity Health, Inc. (NASDAQ:HWAY)
Q2 2020 Earnings Call
Aug 5, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Tivity Health Second Quarter 2020 Financial Results Conference Call. [Operator Instructions] To the extent any non-GAAP financial measures is discussed in today's call, you will also find a reconciliation of that measure to the most direct comparable financial measure calculated in the 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 the purpose and 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 expectations or express 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 filing 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.

I'd now like to turn the conference over to the company President and CEO, Richard Ashworth. You may begin.

Richard Ashworth -- President and Chief Executive Officer

Thank you all for joining the call today to discuss Tivity Health's second quarter earnings results. I assume the role of Tivity's President and CEO in June, and I'm excited to be on board. Before I go any further with today's remarks, I want to start off by thanking our colleagues for their ongoing efforts in what is a very challenging time for everyone. It's clear to me that the Tivity Health team loves what they do, and I've been incredibly impressed with their dedication and hard work that I've witnessed in my short time here. As a bit of background, my approach is to be direct, organized, disciplined in our decision-making, strongly focused on company performance, while dedicated to providing meaningful experiences for our customers. With that color on where I'm coming from, I'd like to share why I joined Tivity Health and some of my observations from my first two months here.

First and foremost, what drove me to this role was the significant opportunity for growth in both our businesses. SilverSneakers and Nutrisystem are two incredibly trusted brands with seriously loyal membership bases and Tivity Health has cultivated impressive and deep relationships with our health plan partners and our customers. I believe one of the keys to Tivity Health's success is the actual difference it makes to the consumer. We help people on their path to better health by being more active and losing weight. The reputation of these brands is stronger than ever and has continued to make a positive difference in people's lives every day. Since I joined in June, we've been working with diligence and speed to develop our key initiatives to build upon the existing foundation and set us up for future growth. While still a work in progress, the strategy will be based on several principles, including: leveraging our great brands, reputation and focus from our colleagues; anchoring onto the fantastic SilverSneakers and Prime platforms; accelerating our digital capabilities; and ensuring discipline in all aspects of the business.

We remain committed to the success of Nutrisystem and are focusing efforts around technology, quality and personalization. Ultimately, we are organizing for growth around the key pillars of loyalty, brand and customer. There's a lot of exciting work to be done to solidify our long-term strategy, and I look forward to updating you on our progress in the future. I'm incredibly pleased to be able to kick off my first earnings call as Tivity Health's President and CEO by reporting strong second quarter results, supported by actions that stabilize the long-term health of Tivity Health. This quarter is evident that our model is adaptable and resilient. In the Healthcare business, we made great progress expanding our digital brand, which helped to partially offset the lower visit volumes that we anticipated resulting from COVID-19-related gym closures. I view expansion and adoption of our digital brand in SilverSneakers and in Prime as meaningful opportunities for Tivity Health in terms of creating additional value for our customers and members and also in enhancing our financial value.

We intend to accelerate our digital roadmap and path to monetization for healthcare and focus on differentiating us by the consumer-oriented experiences we will provide. Digital will be an important piece of Tivity Health's offering in the future. On the Nutrition side, our solid results were derived from robust new customer growth for the Nutrisystem brand, driven in large part by our innovative new personalized plans, our expansion in digital marketing and creative that resonates with consumers. We believe the investments we made in our AdTech MarTech capabilities, along with our broader marketing transformation initiatives will serve as a catalyst for sustained growth for this business. At an enterprise level, we took the necessary actions to stabilize the business for the short and medium-term and to ensure the viability of our cost structure. The sustainable, decisive actions that we implemented, especially in the Healthcare business, have put us in a better position to compete for the long term.

We ended the quarter with a strong cash position of $60 million, and we repaid the $75 million revolver balance in mid-June. At this point, we have maintained stability and are confident that we will end the year safely below our credit facility covenant ratios. Additionally, at the end of July, we took further action, paying an additional $25 million toward our long-term debt, which means our next mandatory amortization payment is due in December of 2021. We are in the early phases of organizing for growth, and our ultimate goal is to ensure we have the appropriate organizational structure and processes in place to succeed in the future. To do so, we're running multiple scenarios. We are a focused accountable organization, enabling a clear line of sight in our core business performance and value building activities. We are creating a flexible and nimble variable cost structure, enabling us to quickly scale when merited by business expansion opportunities.

Before we turn to review of each of the business units, I want to provide an update on the announcement we made during our first quarter earnings release that we had commenced a strategic alternatives process regarding our Nutrition business, which could include a transaction. We are pleased with the interest received regarding a potential transaction related to our Nutrition business. As noted in our earnings release today, we're working to determine if there may be a qualified buyer who will meet our objective of a transaction that is beneficial for all our stakeholders. While the Nutrition strategic alternatives process is ongoing, we will continue to operate this business and maximize all opportunities to better serve our customers, grow our business and prepare for a successful 2021 diet season. Turning now to the Healthcare business.

I want to take this moment and recognize Steve Janicak for his leadership to Tivity Health and our Healthcare division over the past four years. Steve and I have mutually agreed that Steve will be leaving Tivity Health effective August 31. Steve has been a great leader to Tivity and has been a key driver of the growth and expansion of SilverSneakers and Prime. We appreciate his contributions and wish him well. Steve has put together a strong leadership team, and we expect a smooth transition. I have already been in touch with many of our largest clients and enjoy broad relationships in the Medicare Advantage space. Steve will be joining us on the call later for the question-and-answer portion. While we continue to face some challenges due to the ongoing COVID-19 pandemic during the second quarter, our strong brand and deep customer relationships have been integral as we are navigating the choppy waters and focusing our efforts on innovating and adapting for growth in these uncertain times.

In our SilverSneakers business, we saw an uptick in our in-person member visits as stay-at-home orders were lifted, particularly in June. Opening is ongoing for our partner locations with approximately 66% of our gyms reporting at least one visit for the month of June. While visits are around 20% of our pre-COVID levels, those members that have returned are participating at nearly the same frequency as they did before COVID-19. At this point, we don't have a clear view of when gyms will be fully reopened and when total participation will return to pre-pandemic levels. Regardless of how long the effects of the pandemic last, we believe digital will play a larger role in the lives of our members going forward, so we have continued to pursue the acceleration of our digital strategy. In the second quarter, we were successful in continuing to quickly scale our digital offering to keep as many members active as possible, and we generated engagement in our digital platform. The use of our Facebook Live SilverSneakers Classes and on our silversneakers.com portal increased nearly sixfold in April and May compared to February.

25% of digital attendees were new to SilverSneakers in Q2 and were first time engagers with Tivity Health. This is another proof point of further extending our brand relationships. Beyond member engagement, we maintained our solid relationships with our clients throughout the second quarter. We continue to work closely with our health plan clients to develop the optimal digital commercial construct that will be mutually beneficial over the long term. Our health plan partners have long-term views on the member journey to health and value Tivity Health's contribution in the middle of this crisis to help members with their social, physical or nutritional needs. A few noteworthy highlights from this selling season include an addition of over 350,000 new SilverSneakers lives for 2021, including new clients and market expansion within our existing clients; expansion of our WholeHealth Living acupuncture program with new and existing clients; and existing client renewals on par with prior year success despite the challenging environment, this includes clients on both our payment models.

Turning to Prime. I want to start with a quick reminder of the business model. Prime offers a comprehensive network of over 12,500 partner locations and is marketed to our health plans commercially insured members under 65 years old. In the second quarter, Prime accounted for 23% of Healthcare revenue. As we anticipated, we saw a sequential decline in the total number of Prime subscribers in the quarter, predominantly resulting from members' partner locations being closed. But we were able to counter some of this decline with new subscribers in the quarter. We now have a total of over 230,000 paying subscribers and over 7,000 of those subscribers joined us in June. We are watching the landscape closely in terms of reopening, and we have extended our digital solution to this segment of our business as well. We also launched our new Prime solution with one of our large health plan partners in the quarter.

This new product incorporates more flexible package options for individuals, including family plans and the incorporation of studios and boutique gyms. As part of this launch on our enhanced fitness platform, Tivity Health also introduced new mobile capabilities via our Prime app, including the ability to book studio classes on-the-go and complete mobile gym check ins.

I'll now turn the call over to Tommy to review the nutrition business. Tommy?

Tommy Lewis -- Investor Relations

Thanks, Richard, and good afternoon, everyone. Our strong start to the year continued in Q2, allowing us to close out another solid quarter for the Nutrition business. Our Nutrisystem brand DTC performed particularly well this quarter, delivering revenue growth of approximately 6% year-over-year and strong EBITDA contribution. Our relevant KPIs are trending in the right direction to include Nutrisystem DTC. New customer starts have increased 28% year-over-year. Average selling price continues to increase following our Q1 price increases. We added nearly 2.5 days to length of stay year-over-year. And customer acquisition costs improved over last year due to our continued shift to digital, improved analytics, tools and execution.

New customer start trends in the quarter were exciting, with Q1 momentum flowing into April and accelerating through May and June. In fact, this was the strongest May and June in over a decade for program starts for the Nutrisystem brand, and the favorable momentum is continuing through the summer. We believe that our actions are driving the majority of the growth in program starts. While acknowledging that COVID-19 has had some impact on consumer behavior, our personalization program is resonating with consumers, and our creative and messaging are on point, with an emphasis on our competitive differentiators of home meal delivery, high-quality food and a program that delivers results. The continued evolution of our digital marketing program is paying dividends as we increase reach, improve targeting, reduce acquisition costs and achieve marketing efficiency overall. Even with our TV percentage of media spend declining, our TV spots are more productive.

We have seen recall increased significantly. Recall measures how memorable our advertisements are and is an important factor in brand awareness and the productivity of our TV spots. We have emphasized efficiency and effectiveness in our approach to marketing, and it has proven to be exactly what this brand needed. One example of that being in our rate of nonuser awareness for those who have heard of the brand but never tried it. That group increased meaningfully for Nutrisystem in the second quarter, suggesting that our Q1 marketing brought consumers into the top of the funnel. We also saw solid reactivation revenue trends, which have positive implications for EBITDA and indicates we have a loyal customer base. For our South Beach Diet brand, our digital-only marketing strategy is working.

We have improved EBITDA in the second quarter, although top line revenue was pressured as expected. Turning now to our marketing transformation initiative, which we launched last fall, we made advancements in our marketing technology, talent and tools, all aimed at improving media efficiency, reach, targeting and enhancement of the brand. We are also readying to launch the second phase of our AdTech MarTech effort with our consumer data platform. Through this effort, we will be modernizing our marketing and digital toolkit with better consumer insights and improved omnichannel analytics. Finally, a big reason behind the strength of our brands is our focus on the customer experience. We are expanding customer engagement efforts, which we believe has been a factor in increasing the average time on program. two of the drivers are NuMi, our app for Nutrisystem, and The Leap our robust content site.

NuMi continues to see increases in engagement, with more consumers using the app and using it more often. Engagement with The Leap is increasing as well as it has become a go-to resource for our customers for information about health and wellness. As customers have become more engaged in our resources and tools, they are buying more a la carte products and staying with the brand longer. In summary, we are very pleased with another strong quarter for Nutrisystem. The combination of the foundational work we did in digital in late 2019 and early 2020, a great program that achieves results, offers that resonate with consumers and customer acquisition are all working together to generate continued momentum in our business.

Now I'll turn the call over to Adam to review the financials. Adam?

Adam Holland -- Chief Financial Officer

Thank you, and good afternoon, everyone. Our Healthcare segment generated revenues of $81.9 million, a decrease of 48% from the same period last year. SilverSneakers revenue was approximately $49 million, down 60% compared to last year due to temporary closures within our fitness network resulting in fewer revenue-generating visits. Because of these closures, SilverSneakers revenue profile during the second quarter of 2020 was substantially different from the same period last year. Revenue from per-member-per-month fees represented 88% of our total SilverSneakers revenue compared to 33% in the same period last year. We ended the quarter with 16.3 million health plan members eligible for SilverSneakers, an increase of 9% over the same time in 2019. Total SilverSneakers visits were 3.1 million during the second quarter of 2020, most of which occurred in the month of June compared to 25.8 million during the second quarter of 2019, with monthly average participation decreasing during the quarter to 1.1% compared to 8% last year.

Approximately 12% of the 3.1 million visits during Q2 were digital. The second quarter ended with 3.6 million enrolled SilverSneakers members. Moving on to Prime. We generated $19 million of revenue in Q2, a decrease of 36% from last year. As reported in May, we ended the first quarter of 2020 with 329,000 paying Prime subscribers. Throughout the second quarter, we saw fewer new subscribers and an increase in subscription terminations and suspensions relative to our historical norms. We ended Q2 2020 and with 235,000 paying Prime subscribers. This compares to 334,000 subscribers at the end of Q2 last year. This subscriber decline accounted for the majority of our year-over-year revenue decline. In line with our expectations, we experienced a substantial decrease in gym visits from our Prime subscribers, with approximately 760,000 visits in Q2 this year compared to 4.8 million last year. Moving on to WholeHealth Living and Other Healthcare revenue.

During Q2, we recognized $2 million in Wisely Well revenue. Also, we generated $6.8 million in revenue from a program, with a large employer aimed at improving its employees' well-being during the COVID-19 pandemic. We do not expect revenue from this program to recur in future quarters at this level. In summary, while COVID-19 and the related gym closures negatively affected our SilverSneakers and Prime revenue for the second quarter, the considerable drop in variable gym visit costs allowed for a strong flow-through of revenue to gross margin. Additionally, the Healthcare division took further actions to reduce costs and preserve liquidity in the near and midterm. Therefore, this division ended Q2 with $41.5 million of adjusted EBITDA, a 16% increase over Q2 last year. I'll now turn to the Q2 results for our Nutrition segment. Total Nutrition segment revenues came in at approximately $181 million, a 1% decrease compared to the same quarter last year.

Building on this momentum from the first quarter, the Nutrisystem brand DTC business generated approximately $165 million in revenue, an increase of 6% compared to both the prior year and our first quarter of 2020. This increase was driven by Nutrisystem new customer revenue of $107.5 million, which was up 12% year-over-year, partially offset by an expected decline of reactivation revenue, which was down 4% at $57.7 million. The new customer revenue for Nutrisystem was driven by a 28% growth in new customer starts and a nearly 2.5-day increase in length of stay, with a slight increase in average sales price. Moving on, South Beach Diet revenue was $8.7 million, down 40% year-over-year, and QVC and retail contributed a combined $6.8 million in revenue, down 44% year-over-year. Second quarter Nutrition adjusted EBITDA was $33.4 million or 18.5% of segment revenues. This compares to $34.7 million or 19% of segment revenues in the prior year period.

This year-over-year decrease was driven by a slightly higher cost of goods in our Nutrisystem DTC business related to higher food costs and some program mix shifting to our premium products as well as a slightly higher marketing expense as a percentage of revenue. Marketing spend on a dollar basis was essentially the same year-over-year as we saw strong customer demand and efficiency gains in our customer acquisition as we continue to shift our media mix more into digital and less dependent on linear TV. As a result, in the second quarter, program starts for Nutrisystem brand DTC reached their highest levels in over a decade. Our experience tells us this should drive incremental revenue and profits through the third and fourth quarters. Turning to our Q2 balance sheet and cash flow. We ended the second quarter with cash on hand of $60 million. During mid-June, we paid down our revolving credit facility and had $124.5 million available to borrow at the end of Q2. We ended Q2 with $1 billion of term loan debt, and we prepaid $25 million of principal amortization in July.

As a result, our next quarterly amortization payment is not due until December 31, 2021. We ended the quarter with a maintenance covenant ratio of 4.08 times, well below the maximum ratio of 5.75 times, as calculated under our credit agreement. Our free cash flow for Q2 was strong at $78 million, reflecting the positive operational performance of both divisions, seasonality of the Nutrition business plus favorable working capital dynamics. Year-to-date, we have produced free cash flow of $121 million. In addition to the actions taken by management during March and April to strengthen our liquidity across both divisions, we made further cost eliminations and reductions in June. Notable and significant actions, including: layoffs; furloughs; and the continued cash salary reductions, impacting a large number of our colleagues, management team and our Board of Directors. We believe that our year-to-date performance, in addition to these actions, create adequate runway to operate both businesses with confidence throughout the end of the year. Regarding our credit facility, based on our current assumptions, we believe we will be in compliance with a net leverage ratio covenant over the next 12 months.

I'll now turn the call back over to Richard. Richard?

Richard Ashworth -- President and Chief Executive Officer

Thank you, Adam. As I close out the prepared remarks, I want to reiterate the utmost importance of the safety of our colleagues, members and customers. We never take that for granted. Once again, I'd like to thank all of our Tivity Health colleagues for their dedication to our mission and their incredible effort in these unusual times. Their focus and determination on behalf of our customers and members are truly appreciated.

We believe that our stabilization efforts and solid performance in the second quarter will serve us well as we move forward, assessing our growth opportunities. As I indicated earlier, we'll be focused on ensuring we have the most optimal organization structure and processes in place to enable value enhancement. I could not be more pleased about my decision to join this organization.

We will now open the call to your questions. Operator?

Questions and Answers:

Operator

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

Jailendra Singh -- Credit Suisse -- Analyst

Thanks and good quarter. I want to get better color on your cost reduction measures in both the segments. Can you provide some color around how much of these measures are like temporary given the COVID impact versus how much is more of an ongoing nature?

Adam Holland -- Chief Financial Officer

Hey, Jailendra, this is Adam. I can take that. It's a mix of both. We haven't broken out which ones are more in temporary in nature. I think clearly, the layoffs are going to be more in the bucket of permanent, whereas cash salary reductions would be more temporary.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And then.

Richard Ashworth -- President and Chief Executive Officer

I have a follow-up. I would just say that a lot of those costs were focused on our Healthcare division, disproportionately versus the Nutrition division as well.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And then on your comments around encouraging signs you're seeing from members beginning to return to fitness centers. Have you seen any major variances in terms of geography as kind of cases continue to rise in some southern states versus rest of the country? And any feedback you can share in terms of from your gym partners in terms of what comfort seniors have in terms of coming back to gym and they're not following the protocol and guidelines. Any feedback from the partners?

Richard Ashworth -- President and Chief Executive Officer

Yes. I'll start, and Steve, maybe you want to weigh on some of the gym partner locations. I would say, Jailendra, first of all, that it's as you would expect, it's pretty corollary to what's happening within the state, right? So as the governors are taking actions, we're seeing gym participation reduce and then also come back, depending on what stage or what phase that each state is in.

The good news is that in June, we had 66% of our participating locations submit at least one gym visit, and what we're seeing in our feedback from our participants is a high degree of wanting to get back in and start keep their routines to stay healthy. So we are seeing it pretty disproportionately impacted to what the states are doing. I don't know, Steve, if you want to.

Steven Janicak -- President of Healthcare

The only other thing I would add is that as we talk to our PL partners, they're doing everything they can to keep it as healthy as they can for our members and for their members in general. So we still have some restrictions as to capacity. It's still almost at 50%. There are still restrictions on the kind of classes that they can do. But as markets are open up, we just opened up three markets this past couple of weeks: Illinois, Minnesota and Pennsylvania.

So as places like Florida are scaling back and California, we've got a little bit of an offset with some of the other markets. So we're watching it on a day-to-day basis. We're looking at it, and we're doing the best we can to try to keep everybody safe and healthy and keep them exercising as well.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And one last, if I can. Richard, I want to better understand your positioning with respect to the pending sale of Nutrition business. How committed you are with respect to selling that business, especially in light of some improving trends recently in there?

Richard Ashworth -- President and Chief Executive Officer

Yes. Good question, Jailendra. I came to this business because I was excited about both sides of the house, the Nutrition and the Healthcare side, and there's opportunities for growth in both. And I think what you're seeing today is strong performance, and I'm very pleased with that. At the same time, we're continuing the process on our strategic alternatives. We're pleased with the interest in Nutrisystem. We're working to determine if there's a qualified buyer who may meet the objectives that we have for the transaction that way it's beneficial for all our stakeholders. We've mentioned before, it needs to be credit enhancing and valuable to everyone.

At the same time, our management team, Tommy and his team, are 100% dedicated and focused to driving this business to the highest levels. You've seen the results today, it's a great example of that. We're in heavy preparation mode for the 2021 diet season. And our Board and management team are committed to continuing a thoughtful process here. Personally, I'm happy to continue to run this brand and this business. I think it is fantastic. But at the same time, if we can find an alternative that's credit enhancing and beneficial for all of our stakeholders, we'll go that route as well.

Jailendra Singh -- Credit Suisse -- Analyst

All right, thanks a lot.

Richard Ashworth -- President and Chief Executive Officer

Thank you.

Operator

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

Nick Spiekhout -- Blair -- Analyst

Hey guys, this is Nick Spiekhout in for Ryan. I guess to start, given the margin improvements you guys are seeing in Healthcare with the largely fixed PMPM fees and then fairly negligible cost, I was wondering if you guys are receiving any sort of pushback from plans given the improved margin profile? Is there any risk of that in the future potentially?

Richard Ashworth -- President and Chief Executive Officer

Yes. Nick, it's a good question. No is the short answer. The longer answer is, we're working in partnership with our plans. Steve and his team have done a great job on the digital side, really working with plans to make sure that we can keep people moving, right? That's our main objective, it's to keep people healthy and physically fit. There's a lot of other things we do for our plans. Other than helping them get in the gym, we help them with some annual enrollment activities.

We help with engagement. We help with social connections and some other things. So at this point, I would say no, but I would say also that our health plan partners really value the long-term benefit of fitness for their members. And so we're in this together.

Nick Spiekhout -- Blair -- Analyst

Great. And then kind of going off that a little bit. Prior to COVID, similar to the Healthcare side, was kind of seeing a bit of margin pressure as gyms were kind of negotiating costs up or at least trying to. I was wondering if that's kind of been reversing at all given the stress that gyms are currently under and whether you see those cost pressures kind of subsiding in the medium to long term?

Richard Ashworth -- President and Chief Executive Officer

I haven't seen any changes as of now. What I would say, these are longer-term contracts, and COVID is obviously impacting all of us in different ways. But at this point, what I would say is that there's always supply and demand pressure in the network business. We'll continue to handle those as they come. Right now, our gyms are focused on safety, as Steve was highlighting, making sure they're creating the right environment. We're trying to make sure we keep engagement with our members on behalf of our clients. And between the three of us, the health plans, Tivity Health and our gyms, we're just trying to make sure we get people back to active. In terms of the margin areas, nothing has really changed at this point.

Nick Spiekhout -- Blair -- Analyst

Great, thanks guys. I appreciate taking the question.

Operator

So, your next question comes from the line of Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Alex Fuhrman -- Craig-Hallum Capital -- Analyst

Great, thank you very much for taking my question and congratulations on really, really strong results here during the pandemic. I wanted to ask about all of the digital classes that you've been doing on SilverSneakers and to a bigger extent, your entire portfolio of digital assets on the Healthcare side. Can you talk about how you're monetizing that? I know SilverSneakers was pretty quick to offer some digital content as fitness centers were closing across the country. It sounds like you're starting to get some members back into the gym, but still 80% down from where it was a year ago.

Have you had good interest from members in the digital content? Do you think that's something that ultimately, you're going to see your members using for years to come? And can you just tell us a little bit about the economics of how that works. Are you getting paid for visits when your members are engaging with one of your online classes? Any more color you can give us on that would be very helpful.

Richard Ashworth -- President and Chief Executive Officer

Thanks, Alex. Good question. So a couple of things on this. I think first is that the future of fitness is a combination of digital and physical, so I see that both are going to be required for the right fitness platforms of the future for our beneficiaries and just in general. So we're excited about the opportunity that brings for our member base. We have a couple of different ways that we virtually engage, right?

We have ones that are virtual with instructor, and we have some that are more on streaming on silversneakers.com and we also have our Facebook Live. And between all three of those, I would say engagement is really high. In terms of the remuneration and the way that we're working with other plans, I'll ask Steve to weigh in on how that's working and what it might look like.

Steven Janicak -- President of Healthcare

Sure, Richard. In certain scenarios right now, we are receiving some payments, but we're very early in the stage, figuring it all out. Many of our health plans have committed to let's just do what we can to get our members moving, and we'll figure it out after the fact. So we're starting, and we are having those conversations now as to what this looks like in the future because, as Richard said, digital will be here as a part of what we do going forward.

So it will be both in-person as well as digital. So some cases we're getting paid, but we still haven't figured out what the long-term strategy is and how we continue that and what the digital component of it is going forward.

Richard Ashworth -- President and Chief Executive Officer

We'll work with them, right? I mean we'll work with our plans over what a good commercial model of the future looks like for physical and digital, and we'll make sure we get that in good faith, what is beneficial for everybody. The main thing is to get members healthy and keep them physically fit and active. And that's because we both have the same end goal in mind, I'm optimistic about that.

Alex Fuhrman -- Craig-Hallum Capital -- Analyst

Great, that's really helpful. Thank you very much.

Operator

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

Dave Styblo -- Jefferies -- Analyst

Hi there, good afternoon and thanks for the question. I think the SilverSneakers business is pretty well understood that the earnings or the EBITDA there is very resilient, and since there's some natural offsets when volumes built up or down as participants go. But I was more interested about the Prime business there. I know that's down about 35% year-over-year, understandably. I guess as you're starting to emerge to a more normalized environment, do you guys have a sense for how much of that might be permanently gone since I think those customers usually are more from business travelers who are on the road and want to have access to a nice gym.

But if we're moving to an environment that's more work-from-home, is that changing sort of where that might rebound back up to? Any way to sort of tease out details as you're moving into June and July here?

Richard Ashworth -- President and Chief Executive Officer

Yes. Good question. I think from my point of view, it's a little too soon to predict what's going to happen with Prime members. Much of this is going to be dependent upon gym reopening. Based off what we've seen so far, though, these members come back once gyms reopened. We had 7,000 new members in June, so that's a good indication that people are wanting to get back to the gym. We've also offered our Prime members some other ways to engage. We have a partnership with BurnAlong where they can get virtual classes for those members.

And that's the way that we have taken some of our digital capabilities we were building on SilverSneakers and move it over to Prime. Again, it's probably a little too soon to tell. I don't know, Adam, if you want to have some commentary on this, but that's the way I see it.

Adam Holland -- Chief Financial Officer

Yes. I think it's all right. And Dave, I think the business travelers, it is a piece of it. I wouldn't say it's the biggest piece of the Prime model. There's still just a lot of folks that get this program through their health plans, they work out locally. We did see visits start to come back, especially in June, when most of the nation's gyms reopened. So I think I just dovetailed into what Richard said. Too soon to say. We've got our eye on it.

You make a good point that with gym closures that this model may be a little unclear in the next few months in terms of how subscriptions go. But I think over the long haul, the model still is a strong model. It's beneficial to the PLs, adds ancillary revenue streams, allows our health plans to add an additional benefit, and I think that model is going to continue to be important for both parties as we get out of COVID next year.

Dave Styblo -- Jefferies -- Analyst

Okay. And then moving over to Nutrition, obviously, some nice progress there. The sales slowed down. The declines from negative 7% in the first quarter, then it's only down 1% and some nice new customer growth. I'm curious, as you stand here going forward, do you think that business is going to inflect where you're going to be able to have some revenue growth in the back half of the year?

Tommy Lewis -- Investor Relations

Hi, Dave, Tommy. I hope you're doing well. The pressure that we see in that business is in the South Beach and retail areas, Nutrisystem DTC business is up in revenue 6%, as Adam mentioned. We'll continue to see some top line pressure around South Beach and retail. We're focusing in the South Beach area from an EBITDA expansion perspective. We've turned that business into a profitable business now. It's 100% digital, so that's our focus now as we reenvision the brand, and we'll talk about bringing that brand back to life later next year.

Retail, we're optimistic about the load-ins for this fall. We've got a lot of excitement around our new retail line, so we'll have more to talk about there next quarter. We would expect that the momentum we're seeing in Nutrisystem DTC will continue.

Dave Styblo -- Jefferies -- Analyst

Okay, great. And then last one, just on following the cash, so $60 million at the 2Q mark, and then you guys, I think, are down about $35 million after paying off some additional debt. I know there's a lot of volatility and tough to see what's going to happen over the next or the second half of the year, but what are sort of the puts and takes to cash from here as you're thinking about working capital changes and so forth? Is there an opportunity to build the cash back up a little bit?

And what are you thinking about doing with that? Would that just immediately go toward debt retirement or other investments that you might be making for some of the enhancements to the digital platform?

Richard Ashworth -- President and Chief Executive Officer

Yes, thanks for that question. It's a really good question. Q2, from a seasonal standpoint, it's the Nutrisystem's strongest quarter so naturally, this was going to be our heaviest cash flow free cash flow quarter. I think what we're looking at, we have ample liquidity. Yes, we do have $60 million on the balance sheet. We generated more after the month of June, and we paid down $25 million in July. And I think we're going to evaluate. There's some working capital dynamics that go the other direction. You got seasonal inventory build, for instance, in the Nutrisystem business in the fourth quarter.

So we want to make sure we keep adequate dry powder, but we also want to be cognizant that we can make the investments in the businesses we need to make. We do have a debt service that we need to pay attention to. We don't want to pay interest costs where that's not necessary. So we'll be balancing all of those together up against the backdrop of what's happening in the broader COVID environment.

Alex Fuhrman -- Craig-Hallum Capital -- Analyst

Okay, thanks.

Operator

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

Jessica Tassan -- Piper -- Analyst

Hi, thanks for taking the question. I think we're just interested to know if you guys could speak at all to your 2021 conversations with the health plan, just in light of the visit volume pressure, if contracting is doing more in the direction of fees for visit as opposed to PMPM style contract.

Richard Ashworth -- President and Chief Executive Officer

Thanks, Jessica. I'll start and then Steve may weigh on. I'd say at the highest level is that the conversations have been on par with previous years, especially as it relates to client retain. Amount, so we're doing well there. And I think the mix is historically the same. We're getting some that are fixed. We're getting some that are variable. But all in all, the conversations have not shifted much even during COVID. And in fact, the 350,000 new lives all came while COVID was actually here and happening. So I think that's a good testimony to the value that our health plan partners find in this platform. Steve?

Steven Janicak -- President of Healthcare

I think you hit the nail right on the head. We're renewing our contracts at the same rate we had before in prior years, as Richard said. We are not having any conversations about switching payment models. And the new business that we're bringing in, it's a mix of both hybrid and PMPM. And so basically, if you take a step back and look at it, we are pretty much on par with the prior years, where COVID really hasn't had an impact in a swing either which way as it relates to renewals or new business.

Jessica Tassan -- Piper -- Analyst

Got it. And then if I could just ask one quick follow-up. Have you guys considered maybe alternative sites for some of your classes, thinking just outside potentially? And if that's worked in any markets, is that something you could permanently introduce and maybe mitigate the cost of the fees charged to you by the gym?

Steven Janicak -- President of Healthcare

Yes. We actually have a program called Flex, which is actually taking our classes to alternative locations, most of them being not most, some of them being outside, some of being indoor location. So we are doing that, we have done it. As you can imagine, some of the participation was a little bit low as people were quarantined in the house. But now as people are starting to open up and get outside, we are seeing some participation increases in those classes as well.

Jessica Tassan -- Piper -- Analyst

Thank you.

Operator

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

Richard Ashworth -- President and Chief Executive Officer

I just want to thank everybody for their questions today. We appreciate the time to give you what we've accomplished in Q2. We look forward to staying in touch. Thank you.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Richard Ashworth -- President and Chief Executive Officer

Tommy Lewis -- Investor Relations

Adam Holland -- Chief Financial Officer

Steven Janicak -- President of Healthcare

Jailendra Singh -- Credit Suisse -- Analyst

Nick Spiekhout -- Blair -- Analyst

Alex Fuhrman -- Craig-Hallum Capital -- Analyst

Dave Styblo -- Jefferies -- Analyst

Jessica Tassan -- Piper -- Analyst

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