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Tivity Health, Inc. (TVTY)
Q3Â 2020 Earnings Call
Nov 5, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Tivity Health Third Quarter 2020 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Mr. Ryan Wagers, Chief Accounting Officer and Treasurer. Thank you. Please go ahead.
Ryan Wagers -- Chief Accounting Officer
Good afternoon and welcome to the Tivity Health third quarter 2020 financial results conference call. 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 President and CEO, Richard Ashworth.
Richard Ashworth -- President and Chief Executive Officer
Thank you, all for joining the call today to discuss Tivity Health's third quarter earnings results. Joining me today are Tommy Lewis, Chief Operating Officer and Nutrition Division President; and Adam Holland, our CFO. Tommy will share with you more detail about how the Nutrition business performed during the quarter and Adam will cover our third quarter financials.
Before I begin, I want to start by thanking all our Tivity Health colleagues who continue to operate and execute with great results. I especially want to thank our Nutrition colleagues. I have a tremendous amount of respect for you and appreciate your focus on execution and performance. Our continued disciplined approach to managing these businesses has resulted in strong performance for both businesses again this quarter. On October 19, we announced that Kainos Capital will acquire Tivity Health's Nutrition business which includes Nutrisystem and South Beach Diet for a purchase price of $575 million in cash. The net proceeds will be used to pay down our debt and the transaction will be materially credit enhancing. We expect our closing date will be before the end of the fourth quarter and will result in a post close debt ratio of no more than 2.8 times.
The benefit of the reduced leverage will provide a stronger go-forward balance sheet. Another important benefit will be our ability to direct 100% of our focus on to our Healthcare business to drive sustainable growth. We are focusing on the basics. We have talented team members, and we have plans for near-term growth. We are restructuring and reorganizing to position our team to deliver our growth ambitions. We will invest in both our people and our technology. Our goal is to focus on member engagement to become a modern destination for healthy living.
Since I joined the company in June, I've been focused on developing a strategy for our Healthcare business that will leverage our great SilverSneakers brand and combine it with new digital engagement tools and data to become a member-centric organization. We will provide better member engagement inside and outside of the gym. We will build upon our strong health plan relationships and deliver new fitness offerings and social connectivity to engage more members in the gym through our virtual channels and in the community. The basic foundational elements of this business, core fitness and physical medicine are sound and secure. Our 2021 health plan contract renewals are at 99% and this is typical for our business. We renewed one of our top 5 health plan partners for four years through 2024.
We also added 350,000 additional lives through new client wins and market expansion. Every day 10,000 Americans turn 65 and become eligible for Medicare and our nationwide partner network has over 17,000 locations. As we build on the basics of our business, we will leverage our strong core business and expand beyond the gym. We will become the modern destination for healthy living. We believe we have the relationships, the brand and the permission. We will invest in data and the data platform. We will partner with best-in-class healthcare and consumer data partners to provide insights into power a digital engagement platform. As I mentioned earlier, we will also quickly align our organizational structure and resources to support growth opportunities in both the core healthcare business and adjacencies. You will be hearing more from me soon on our strategic direction.
Now to drill into our Healthcare business. Our SilverSneakers and Prime brands will be powered by new digital engagement tools and data. Our strong health plan relationships will enable us to provide better member engagement inside and outside the gym. We will deliver new fitness offerings and social connectivity to engage more members in the gym through our virtual channels and in the community. We have managed our business prudently through the pandemic with proper expense management, debt repayment and balance sheet preservation. We are now positioning the organization for growth. During the third quarter, our SilverSneakers business saw momentum in a number of areas including in-person gym visits, live instructor-led virtual visits and growth in eligible lives through the gyms [Phonetic].
As stay-at-home orders were lifted, and gyms continue to reopen, our in-person member visits at 8.6 million are an improvement as compared to Q2. While in-person visits are around 30% of our pre-COVID levels, those members who have returned are visiting at about the same frequency as they did before. Opening is ongoing for our partner locations with approximately 76% of our gyms reporting at least one visit for the month of September. For those members who aren't back in the gym yet, our virtual options are resonating well. Year-to-date, we have engaged our SilverSneakers members in over 1 million live virtual visits. With this live virtual offering, we are attracting brand new SilverSneakers enrollees. Since we introduced live virtual classes, these new members have consistently represented 25% of our attendee base. Moving from 0 virtual visits at the beginning of this year to over 1 million now and achieving a roughly 28% increase from Q2 to Q3 this year, is an amazing growth and speaks to the power of the SilverSneakers brand and our digital engagement.
Silversneakers.com continues to be a destination of choice for our members, serving as a hub for our in-person and digital experience, including our library of over 200 exclusive SilverSneakers on-demand video classes. We have expanded SilverSneakers' proprietary digital programing reach by leveraging increasingly common smart devices, including our recent launch on Connected TV with Roku. Now with the SilverSneakers GO application, members can use their smartphones and tablets to register and attend all of our live virtual experiences. Research with our members indicate that these enhanced digital offerings are not a temporary fix to pandemic-driven isolation and are becoming a part of a new normal that members expect to persist, as the pandemic fades over time.
According to a recent SilverSneakers pulse survey almost 80% of respondents said they will continue using digital offerings in addition to the gym. This digital adoption is also opening new partnership opportunities with our health plan. As an example, we've been able to partner with Humana to pivot their popular neighborhood centers to a virtual engagement model offering virtual programs for their members that would have otherwise not been able to occur. Collaborations such as these are a testament to the innovation of our team and the strong partnership we maintained with our clients through the pandemic to continue to deliver value and keep members engaged.
A combination of physical location and digital will be a permanent part of our offerings, allowing our members so use the benefit, where they want, in gym, at home and in the community. From our recent research on SilverSneakers member activity, we found that members expect to engage in non-gym community locations more often post COVID. This insight is evident from the data we see as well, our community-based SilverSneakers fitness classes are growing by nearly 40% quarter-over-quarter. These classes not only represent important physical activity for our members, but also offer the social connections, our members need.
Community fitness continues to play a central role in SilverSneakers experiences. SilverSneakers FLEX has been offered in non-traditional venues and communities for almost 10 years now, and we anticipate continued accelerated growth in this area, because many of our SilverSneakers members expect to do their work out in the community as opposed in the gym as they had pre-pandemic. Our health plan clients remain highly supportive of our efforts to engage their members physically and virtually. They continue to leverage the SilverSneakers brand as a significant differentiator during the Medicare annual enrollment period. Our top clients are integrating SilverSneakers into their sales messaging, broker and agent training, commercials and member materials as a key element of their 2021 benefits and are specifically highlighting our virtual offerings as exciting features for their beneficiaries to use during the pandemic.
As an example, one of our larger health plan clients has included SilverSneakers references in five of its commercials plus distributed flyers. We concluded our selling season with the following highlights, addition of over 350,000 new SilverSneakers lives for 2021, including new clients and market expansion within our existing clients. The new clients represented by both hybrid and PMPM revenue models. Expansion of our WholeHealth Living acupuncture and massage services with new and existing clients representing 250,000 additional members. In 2021, client renewals are 99% even in this challenging year just a reminder that SilverSneakers continues to have the tailwinds of the intrinsic growth of Medicare Advantage with 10,000 Americans turning 65 each day. Add to that, our own organic growth through signing new clients or market expansion.
Turning to Prime, our comprehensive network increased this quarter to more than 12,700 partner locations. In the third quarter, Prime accounted for 23% of healthcare revenue. We ended the quarter with 227,000 paying Prime subscribers, down from 235,000 at the end of the second quarter. We are still adding new lives to Prime, roughly 7,500 of the subscribers joined us in September. We are also engaging members through partnerships for digital expansion of our Prime program. During the pandemic, we were able to introduce live instructor-led virtual classes for Prime members as an alternative to gym location that were unavailable. We also recently finalized the partnership with a leading health and wellness platform to add thousands of on-demand classes offered by hundreds of instructors. This partnership approach is a demonstration of how we intend to rapidly evolve, the value of Prime beyond the gym.
I'll now turn the call over to Tommy to review the Nutrition business. Tommy?
Tommy Lewis -- Enterprise Chief Operating Officer and President of Nutrition Division
Thanks, Richard. Following up strong first and second quarters, we closed out another solid quarter for the Nutrition business in Q3 with revenue up over 10% and adjusted EBITDA up roughly 57% year-over-year. The Nutrisystem brand DTC continues to perform well, delivering revenue growth of approximately 20% in Q3 year-over-year with strong EBITDA contribution. Our revenue drivers and key KPIs continue to trend well Nutrisystem DTC new customer starts have increased 21% year-over-year. We added nearly six days to length of stay, year-over-year.
Revenue per customer increased $70 year-over-year. Due to our ongoing shift to digital and solid execution by our marketing team, cost per order decreased year-over-year for the sixth straight month. These results are a testament to the focus and dedication to excellence of our great team. Like the last two quarters, new customer starts for Nutrisystem DTC were strong as a 21% year-over-year increase. That momentum continued in October. Consumers have discovered that we have great tasting food with a great deal of variety and a program that is simple to use and it works and we deliver right to the door.
In September, we announced the launch of our new Nutrisystem partner plan. Studies have indicated that diving with a partner leads to greater success and help people maintain their weight loss. We know that eating is a social event and now we have a solution that allows partners to experience the journey together and how to each other accountable while enjoying great meal occasions. It's still early, but we are seeing good uptake on the partner plan, and it is yielding a meaningful increase in revenue per customer as well as length of stay. In the retail channel, our all-new Nutrisystem Body Select lineup has been well received by our retail partners. Our new lineup includes new five-day weight loss kits, protein and probiotic shake, plant based full meal [Phonetic] snacks that help power you through the day and nightcap snacks for little evening intelligence that limits late night sugar spikes.
In conclusion, we are very pleased with another strong quarter for Nutrisystem. Our ongoing efforts around modernizing our brand, transforming our marketing, innovating around product and a supportive customer experience ecosystem are all working together to generate continued momentum in our business. We believe this momentum will serve us well as we transition from Q4 into the diet season.
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. Tivity's Healthcare segment generated revenues of $95.5 million, a decrease of 40% from the same period in 2019. SilverSneakers revenue was approximately $69 million, down 45% compared to last year. As expected, due to fewer revenue generating visits as a result of COVID-19. Similar to last quarter, SilverSneakers revenue profile during the third quarter of 2020 was substantially different from the same period last year.
Revenue from per member, per month fees represented 59% of our total SilverSneakers revenue compared to 33% in the same period last year. We ended the quarter with 16.6 million health plan members eligible for SilverSneakers. An increase of 9% over the same time in 2019. Total SilverSneakers visits were $9.1 million during the third quarter of 2020, compared to $26.2 million during the third quarter of 2019. With average monthly participation decreasing during the quarter to 2.4% compared to 7.8% last year. Approximately 494,000 visits during Q3 were digital. The third quarter ended with 3.6 million enrolled SilverSneakers members.
And now to Prime, we generated $21.7 million of revenue in Q3, a decrease of 29% from last year. We ended Q3 2020 with 227,000 paying Prime subscribers compared to 342,000 subscribers at the end of Q3 last year. This subscriber decline accounted for the majority of the year-over-year revenue decline. We had approximately 2.3 million gym visits from Prime in Q3 this year compared to 4.8 million last year.
Moving on to WholeHealth Living and other healthcare revenue. During Q3, we recognized $5 million in WholeHealth Living revenue, up 6% from Q3 last year. Our Wisely Well revenue during the third quarter was immaterial. As a summary, for our Healthcare division, COVID-19 and the related gym closures negatively affected our SilverSneakers and Prime revenue for the third quarter as we expected. As we discussed on the August call, the considerable drop and variable gym visit costs allowed for a strong flow through of revenue to gross margin. Additionally, the Healthcare division continue to benefit from earlier cost reduction initiatives. Therefore, this division ended Q3 with $41 million of adjusted EBITDA, a 4.6% increase over Q3 last year.
Turning our attention to the Q3 results for the Nutrition segment. Total Nutrition segment revenues came in at approximately $159 million, a 10.8% increase compared to the same quarter last year. Following strong performance all year, the Nutrisystem brand DTC business generated approximately $147 million in revenue, an increase of 20% compared to the prior year. This increase was driven by neutral Nutrisystem's new customer revenue of $95 million which was up 30% year-over-year, coupled with an increase in reactivation revenue, which was up 6% at $53 million.
Moving on, South Beach Diet revenue was $6.3 million, down 48% year-over-year. And QVC [Phonetic] and retail contributed a combined $5.4 million in revenue, down 42% year-over-year. Third quarter Nutrition adjusted EBITDA was $28 million or 17% of segment revenue. This compares to $18 million or 12% of segment revenues in the prior year period. This year-over-year increase was driven by decrease and marketing and general and administrative costs both in dollars and as a percentage of segment revenues compared to last year.
Turning to our Q3 balance sheet and cash flow, we ended the third quarter with cash on hand of $56 million. We ended Q3 with $975 million of term loan debt and we prepaid $39.7 million of principal amortization during the third quarter. Our next quarterly amortization payment is not due until March of 2022. We ended the quarter with a maintenance covenant ratio of 3.81 times well below the maximum ratio of 5.75 times as calculated under our credit agreement. Our free cash flow for Q3 was strong at $31 million reflecting the positive operational performance of both divisions partially offset by working capital dynamics.
Year-to-date we have produced free cash flow of $152 million. As Richard mentioned we expect the transaction with Kainos to close before the end of the fourth quarter. We will use a significant majority of the net proceeds of the transaction to pay down our term loan A and term loan B in proportion to their outstanding balances as required by our credit agreement. Following the close of the transaction, we estimate a trailing 12 month covenant ratio of no more than 2.8 times at year end as calculated under our credit facility.
During the third quarter, we recorded a non-cash impairment charge to Nutrisystem goodwill of approximately $66 million, which reflects the difference between our carrying cost and estimated net proceeds from the transaction with Kainos. This impairment charge will not 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 agreement. Based on the Healthcare segment's revenue and adjusted EBITDA performance through the third quarter of 2020 and the outlook for the remainder of 2020, we are providing guidance for annual Healthcare segment revenue in a range of $425 million to $432 million, and adjusted EBITDA in a range of $143 million to $145 million.
We believe the financial and operational performance of our Healthcare segment in the second and third quarters reflect the ability of our business to address the challenges of the pandemic. Based on early fourth quarter activity, we anticipate some pressure in our Prime revenue coupled with an increase in utilization costs for both Prime and WholeHealth Living as compared to the third quarter. We remain focused on managing the business with financial discipline and completing the Nutrition segment divestiture. And we also look forward to investing in our Healthcare business for 2021 and beyond.
I'll now turn the call back over to Richard. Richard?
Richard Ashworth -- President and Chief Executive Officer
Thank you, Adam. I'd like to thank our dedicated colleagues for their efforts and for the results this quarter. We are pleased with our performance and I'm particularly excited about the possibilities around our strategic initiatives and plans to organize our teams to deliver growth. The Nutrisystem transaction is a good outcome for Tivity Health and its stakeholders. As mentioned, it will allow us to focus on our core Healthcare business and build value for shareholders.
We will now open the call to your questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] And your first question comes from the line of Jailendra Singh from Credit Suisse. Your line is open. Jailendra Singh, your line is open.
Jermaine Brown -- Credit Suisse -- Analyst
Sorry, I was on mute. Hi, good evening, guys. This is actually Jermaine Brown filling in for Jailendra. So impressive growth on your digital initiatives. Given the financial flexibility that you'll have post the Nutrition sale. I'm curious about your long term plans is the -- is the primary growth opportunity focused -- focus on the digital health initiatives? And if so, can you just provide any color on the level of investment required to just continue to grow within these programs?
Tommy Lewis -- Enterprise Chief Operating Officer and President of Nutrition Division
Yeah, thanks Jermaine. So, Richard, I'll start and then, Adam, you want to pick up the investment side of the question. I think the growth is going to come in both areas, Jermaine, we're going to see, as you saw in the physical visits coming back on SilverSneakers and in Prime both relative from Q2 to Q3, what we're seeing so far is a continuation of that trend. So we see in visit, in participating locations visits, continuing to grow and of course, you saw the -- the digital acceleration as well. My view is that both of those are going to continue to grow and we are going to continue to invest in both and the investments we've made on the digital side is what has given us the growth we've seen here, the 1 million visits and the quarter-over-quarter growth and we'll continue to do that. In terms of the total investment profile, Adam, any comments you want to make on that?
Adam Holland -- Chief Financial Officer
Yeah, I think Richard hard to add on top of that. The important thing to remember is that this is a, we're unlocking new members through this. As we said in the prepared remarks, we've got about 25% similar to last quarter of SilverSneakers members that are branded program that are coming in via digital channels. And I think that's important. I think it shows the opportunity for the SilverSneakers brand to branch out and that members who may not be able to or want to go to a physical Jim. And so, we will invest appropriately behind that out.
The good news is, we have a solid platform to build off of. We're not doing this from scratch. We have a network of members and instructors who understand how to use digital. And so we'll have more to say as we get through, probably our February earnings call, I expect we'll lay out some more details in terms of how much of investments each of these channels will require, but very excited to see the growth.
Jermaine Brown -- Credit Suisse -- Analyst
Got it. And then just to follow up on that. Any update on the ability to monetize this further in the future? Is the plan primarily to call the user base improve the engagement, improve the retention and then focus on monetizing somewhere down the road.
Richard Ashworth -- President and Chief Executive Officer
Well, yeah, I mean, so, yes, I know, I guess what I would say is that digital will be up part of our offering going forward. I think the new world will be a combination of physical visits and digital business and we're working in partnership with our plans to make sure that those visits are realized as viable business and have appropriate remuneration, but it's still -- we're still here and COVID land getting started, where nobody knows what the output will be, but pretty confident that we'll have a monetizable digital experience along with our monetizable physical visits. I don't know, Adam if you want to.
Adam Holland -- Chief Financial Officer
Yeah. And I'd just point out the 494,000 virtual instructor visits that we have, that's in our supplemental deck. We do get reimbursed for those. So those are available today.
Richard Ashworth -- President and Chief Executive Officer
Thanks, Adam.
Jermaine Brown -- Credit Suisse -- Analyst
Thank you.
Operator
Your next question comes from the line of Ryan Daniels from William Blair. Your line is open.
Nick Spiekhout -- William Blair -- Analyst
Hey, guys, Nick Spiekhout on for Ryan. Thanks for taking the questions. I guess to start off do you have any then kind of the shift to seniors that we've just been discussing kind of digital at-home based fitness? Are you anticipating, or have you been experiencing kind of any pricing pressures coming from plans is obviously that's a little bit cheaper avenue to provide fitness services?
Richard Ashworth -- President and Chief Executive Officer
Thanks, Nick. Yeah, short answer is no, longer answer is we need to make sure that the combination value proposition for our plans works for them and for us and so -- so far we haven't had any issues on the rates or the reimbursement for digital versus physical etc., but we're getting through COVID and as we come out on the other hand, we'll work in partnership with our clients to make sure that the amount of money that they are spending on their members behalf is valuable and working for them, so far that feedback is very positive. And so we're happy to see that.
More importantly I think, and our survey data tells us that members really want it. And post COVID, they believe a few things, they believe digital will still continue to be a part of their workout routine. They'll move more into community and outside, but still use the gym, but they're going to think about our fitness a little broader than they did going into COVID. And so our health plans care about the health of the member as do we and so working together in that in that pursuit, I believe will mean that digital and physical will both be a part of the experienced journey for our members and that both will be billable.
Nick Spiekhout -- William Blair -- Analyst
Great, thanks and then kind of on the other side of that pre-COVID, it seems kind of the SilverSneakers, the fitness division is experiencing a little bit of cost pressures coming up in the gym. We were kind of asking to, you're going to pull a little bit of that margin from you guys. I'm assuming, given that kind of decrease in visits that kind of subside a little bit. I was just wondering kind of what's your updated outlook there as we continue to kind of normalize? Do you anticipate any increased pressure there? Is that mostly kind of been shaken out at this point?
Richard Ashworth -- President and Chief Executive Officer
Yeah, Nick, I'll start and then, Adam if you want to weigh in on this. I think one for me is that there is always network pressure on the top side and the bottom side right rather be the product you're delivering or the person who is funding it. And so I think those dynamics are still at play, but with what's happening in the market, what we provided for Q4 is to give you a view of kind of where we see our performance to be. And within that is our view of what happens on the network side in terms of cost. But Adam, anything you want to add?
Adam Holland -- Chief Financial Officer
Yeah. I think overall the relationship with the -- with our gym partners are still very positive. It's been a very tough year for them. We have lost -- I believe less than 2% of our gym network during the quarter. So, we -- and we typically have some churn in our network 16,000 gyms that we've been very pleased to see that we maintain a relative level similar to pre-COVID. And we will look forward to working with them through the pandemic. Because as Richard said, there is still going to be an important outlet for the SilverSneakers brand. Folks have been crystal clear. They want to return to the gym. They want the social aspect. And we want to make sure that we still provide that and we're working with them to make sure it works similar to health plan works good for us and the gym partners.
Richard Ashworth -- President and Chief Executive Officer
Yeah, I think the relationships that we have on the plan side are strong. And the relationships we have on the gym side are just as strong. And so, what we want is members to be healthier. And for many of our members, that means they want to go to the gym and so maintaining a robust network and good places for them to go is going to continue to be important for us.
Nick Spiekhout -- William Blair -- Analyst
Awesome. Thanks for taking the questions, guys. Have a good day.
Richard Ashworth -- President and Chief Executive Officer
Thanks, Nick.
Operator
Your next question comes from the line of Alex Fuhrman from Craig-Hallum Capital. Your line is open.
Alex Fuhrman -- Craig-Hallum Capital -- Analyst
Great, thanks very much for taking my question. Wanted to talk about the Healthcare segment, which I guess is going to be the bulk of the business going forward now after the sale of the Nutrition segment. I know it's still hard to give a forecast for next year, but just considering some of the new wins and the enrollment growth in eligible lives and what you're going to be seeing and considering, it sounds like the ultimate EBITDA number for this year is going to end up pretty close to where you thought it was at the beginning of the year, even at the high end of the guidance. Is there any reason to think that that sort of base of $143 million to $145 million is a good or maybe not a good sort of base case to build off of, for 2021? Are there may be opportunities to grow that, given the 350,000 new eligible lives that you think you're going to have next year?
Adam Holland -- Chief Financial Officer
Hey, Alex, it's Adam. Good to hear your voice. Well, I can't comment on EBITDA levels for 2021 yet. We plan on doing that when we have our February Q4 call. So, more to come there. I think the dynamics we've seen this year, highly unusual, never seen them before with the higher flow-through of PMPM dollars going to gross margin with low gym visits. I think the important thing to understand is the dynamic of the business is such that as gym visits come back, you'll probably see margin levels go back to pre-COVID levels, which is a good thing because that means we're coming out of the pandemic. But the foundational strength of the business, that being the membership base the gym contracts, the health plan contracts are all intact. And so we feel like we can certainly over the long term grow off of this base, although I don't want to be specific to what exactly next year would look like compared to this year, because this year so unusual.
Alex Fuhrman -- Craig-Hallum Capital -- Analyst
Okay, that makes a lot of sense. Thanks a lot for that. And just thinking about the fact that retention has been so strong and it clearly seems as though health plans are value in US at the partner. How do you kind of work with the health plan to have a better plan for monetizing your digital engagement. I mean it seems like I'm sure the plans are happy that you had $1 million digital and print like that, clearly your members want it, are you working on maybe more formal way to capture that and really measure that with the health plan.
Richard Ashworth -- President and Chief Executive Officer
Yeah. Alex, for sure. That's a big part of what we're doing right now is working in partnership with our health plans to understand what the combination looks like. The key here for the plan is to keep members physically active, mentally stimulated and socially connected and working out actually does all three of those. Right. And so the plan knows that, our offering is -- to your point is value of our offering is resonating well, in terms of the monetization and the go-forward future of it, yes, we have very strong claims for that. And working with our health plan so far, I would say that the responses have been very strong. Do one of these virtual work out, get a little sweat and get some fun end with your other numbers and the instructor and you can see why there is value in these live with instructor-led visit. It's a pretty powerful socially conducting and physical experience. So I think that's why it's being received well is because of work, and I think that's the biggest testament to the experience.
Alex Fuhrman -- Craig-Hallum Capital -- Analyst
That's terrific. Thank you very much.
Richard Ashworth -- President and Chief Executive Officer
Yeah.
Operator
Your next question comes from the line of Dave Styblo from Jefferies. Your line is open.
Dave Styblo -- Jefferies -- Analyst
Hi, there, thanks for the question. Richard, first one is for you. I know, earlier, you're talking about, at some point talking to adjacencies that you'd want to grow into, I took from your comments that for now the growth would be to focus in on in-person visits and then you talked a little bit about expanding on the digital, of course beyond that. Can you give us a preview, a little bit of what's you're thinking in terms of adjacencies that makes sense to help augment the growth.
Richard Ashworth -- President and Chief Executive Officer
Yeah, good question, Dave, I mean, we're still a little early in coming out with the details of the strategy, but a lot of work has been done here and we plan to do that on the next earnings call, so we can get you more definitive information here, but in the supplemental materials we put out, just kind of a graphic to kind of lay out the ideas, one of them, not specific to your question on adjacencies, which I'll get to is the engagement platform and our ability to engage members better than we do today, more efficiently than we do today.
All in pursuit of working with our health plan partners to activate and engage members overall and that could be more than just physical fitness and more than just in the gym. And gym will still continue to be important, but, so is outside of the gym. And looking at the adjacencies market, you can see many different choices that we can go out and will bring in more clarity for you on that in Q4. One thing I want you to know as we approach that conversation is that we're going to do that very methodically, very thoughtfully, you'll see some tests and pilots, you'll see some sequence, other than for us to get in there. We're not going to just kind of jump in and then try and figure it out, we're going to be very disciplined in the way that we -- we do that, but it's still just a little early for me to get into the details of what those are so we plan to do that on the Q4 call.
Dave Styblo -- Jefferies -- Analyst
Fair enough. Okay. How about thoughts on capital deployment after the deal is closed. I know there's some options that we can continue to put money to work. Organically, I am curious about after that is, do you have any sort of buyer to make the opening up and get sort of share repurchases or given the uncertain times, are you inclined to let the cash accumulate on the balance sheet and then maybe to the extent that you do want to talk about M&A, is anything maybe that would fall then with the strategy that you're going to maybe talk about if there is a small epidemics as to build off to augment strategy. But any color on that topic would be great.
Richard Ashworth -- President and Chief Executive Officer
Now, I'll start and Adam you can win here too. So the first thing I would say is, we're going to keep some optionality here in the short term, so that we can deploy the capital and the exact right spot that's most beneficial for our stakeholders. My preference is to put that into the business to drive long-term terminal value growth and I think our strategy is compelling, that we'll be sharing with you soon and inside there, I think you can see a lots of places for us to invest that can give good returns and better member experiences and enhance our relationships with all of our -- all of our partners.
With that said, we still have some remaining debt, as you know based on the materials that we presented. So one option is to put some there, one could be as you suggested in a repurchase another one be to just invest it in the business, it's a couple of different choices. As I sit here now we want to deploy the capital in the most efficient way that gives us the greatest, full stakeholder return. So we won't share any specific set of what we're going to do there definitely understand the route of the question. Adam anything to...
Adam Holland -- Chief Financial Officer
Nothing to add on top of that, Richard.
Richard Ashworth -- President and Chief Executive Officer
Good question. Thank you.
Dave Styblo -- Jefferies -- Analyst
Sure. And just the last one, do you think that guidance right now assuming, but the EBITDA in the fourth quarter declined about $9.5 million from the third quarter and revenue is only declining by about $4.5 million. Can you help on how -- can you help us understand the mechanics behind why that EBITDA shut down. So much steeper or just some elements where you're making more investments or is it the flip side, where some of the visits are starting to come online, and as that happen, the natural hedge that was in effect in the second and third quarter starts to unwind.
Richard Ashworth -- President and Chief Executive Officer
Yeah. I appreciate that question, Dave. Yeah, it's more the latter. So what we called out in the prepared comments was the Prime business and the WholeHealth Living business thing, as you know those are both kind of fixed revenue models. We have seen a decline in Prime subscribers and there is what we're seeing right now, that could go down further in Q4 and that's more, I think due to just some of the seasonality effect, the pallet membership kind of rolls off. Conversely, we also see an increase in visits in Prime, so you've got kind of a smaller subscription base with more folks who want to go to the gym and we saw strong visits in October, and you'll notice just compared to SilverSneakers the Prime profile visit is really like 50% of historical pre-COVID whereas SilverSneakers more of a third.
And I think they just kind of go dispelled. It's a very different gym going base than SilverSneakers. And so when you have a smaller revenue input in Q4. You've got more visit cost higher cost, you're going to have some Q3 to Q4 margin decline with WholeHealth Living completely different business obviously gyms. But those benefits are typically booked on a calendar basis. And so as we reached the end of the year, a lot of folks have pent-up visits to their alternative care practice clinician, whether it'd be a chiropractor acupuncture massage therapist, and they have to use it or lose it in a sense. And so we have with the end of the year approaching, and a lot of folks, not going out at all earlier in the year, we think we're going to have some increased utilization cost in fourth quarter.
So kind of those two things and we typically sometimes see a smaller gross margin in SilverSneakers due to seasonality in the fourth quarter and that's more around the holidays, Thanksgiving Christmas, but not having not having quite the same average visit profile, but there, all that said there is there is room to for some small investments as we get launched on the strategy. Before we get into the new year, but the primary book. I'd say it's going to be driven in the gross margin arena.
Dave Styblo -- Jefferies -- Analyst
Very helpful. Thanks, guys.
Richard Ashworth -- President and Chief Executive Officer
Thanks, Dave.
Operator
Your next question comes from the line of Sean Wieland from Piper Sandler. Your line is open.
Sean Wieland -- Piper Sandler -- Analyst
Hi, thanks very much. Are there any major renewals coming up at the end of the year that are worth calling out and if so how is the conversation going on pricing with those given that changing dynamics utilization here?
Richard Ashworth -- President and Chief Executive Officer
Yeah, good question. And so what we put in our retention numbers and our net new lives is a total reflection of all of the ongoing discussions or negotiations for the year. So we feel -- we feel good about that. And that's pretty difficult for us over the history, having that 99% renewal in terms of the economics obviously not sharing individual deal dynamics, but overall we're pleased with the way that the margin is coming in on these plans relative to history and to what our expectations were. So, what I would say right now is healthy relationships with the plan, very healthy renewals at 99% plus, above market growth with market expansions and new clients that the across our business, not just in SilverSneakers but also and will help living with 250,000 there, so feeling good about the selling season and the renewal season, which is a reflection of those numbers. So, overall very strong.
Sean Wieland -- Piper Sandler -- Analyst
All right. Thanks for that. And how many of the gyms, do you think you're going to -- in your network are going to survive this pandemic. But do you see any risk to lose in any of those?
Richard Ashworth -- President and Chief Executive Officer
Yeah, good question. And something obviously we watch very, very closely, the market, our network is down about 2%. Could that deteriorate further if COVID continues to cause some states to maybe reopen restrictions etc. it's possible. You've seen some of the news with some liquidity challenges and others, but other of our gym providers are actually very strong financially and can whether much longer COVID impact. So, it's hard to tell, what I would say is there's many many choices of gyms for our members to choose within a community, and we're working with, in partnership with our gyms to help them as well. They are taking COVID very seriously following protocols, making sure they're doing their safety and distancing and following whatever state restrictions or guidelines are there, but it's really a hard question to answer what I think that the network would go down a little bit more over time. I think that could be likely, but I really don't know the full weight of that.
Sean Wieland -- Piper Sandler -- Analyst
All right. Thanks very much.
Operator
[Operator Instructions] Your next question comes from the line of Vikram Kesavabhotla from Guggenheim Securities. Your line is open.
Vikram Kesavabhotla -- Guggenheim Securities -- Analyst
Yeah. Thank you for taking the question. Just a follow-up on the previous question, I think in your prepared remarks you talked about your new clients having a mix of both hybrid and PMPM contracts. Can you just talk about how the mix of those contract structures among your new clients and renewals compares to your existing book of business?
Richard Ashworth -- President and Chief Executive Officer
It's very similar, very similar mix. We have clients who prefer hybrid model, we have plans for PMPM and we're happy to serve both.
Adam Holland -- Chief Financial Officer
Yeah, I would say that we haven't seen any intention change based on COVID relative to those two models, it still seems to be about the same. And part of that is our health plan clients see the world in longer horizon then just a few months of a pandemic hitting us and they're really wanting to make sure that they're supplemental offerings and for us it's obviously primarily around fitness is still there for their members and the way that they contract for that, haven't seen a material change in any of the approaches thus far. Okay, great.
Vikram Kesavabhotla -- Guggenheim Securities -- Analyst
Okay, great. And then maybe just a follow-up. I'm curious if you can talk about how the current environment is impacting your overall marketing strategy and spending on the healthcare side in order to drive utilization, and just how that strategy might evolve as you sort of think about 2021. Thanks.
Richard Ashworth -- President and Chief Executive Officer
Yeah, good question. And something we've been talking a lot about here, inside these walls, we're shifting the investment from the traditional marketing behaviors that we used to reminding people to go to the gym that such a and we've done it in two ways. One is we move a lot of that well, some of the investments gone down, we've taken some savings and reduced some of the -- some of the cost, but the other way that we've done it has moved it into digital. And really making sure that our members on silversneakers.com and through our streaming platform have the availability and understanding of how to get to our live with instructor-led billable visits. And so the world just looks pretty different right now.
I would say that our plans have continue to advertise or market silversneakers in a pretty consistent fashion to previous years or prominently displayed on commercials or put on flyers that are going to home, many of our health plans still want SilverSneakers to be a prominent part of their materials. In terms of our own marketing, it's really been a shift toward digital and a slight reduction in the total marketing spend. As we're putting together our plans for next year.
You know, depending on how COVID is behaving in the country will depend on how we deploy that those marketing dollars. But I'm a firm believer and continuing to press on digital and working to get members activated. One key thing is 25% of our digital visits are from members who are newly enrolled to SilverSneakers. These are folks that potentially never would about gotten activated outside of the situation. And so we want to take advantage of that, that makes better for our health plan, makes it better for these individuals who are getting activated. And so we want to continue to invest behind that.
Vikram Kesavabhotla -- Guggenheim Securities -- Analyst
Great, thank you.
Operator
Your next question comes from the line of Mike Petusky from Barrington Research. Your line is open.
Mike Petusky -- Barrington Research -- Analyst
Hi, good evening. I think you may have just answered my first question. So of that 494,000, 25% were brand new or 25% of the folks that make up that 494,000?
Richard Ashworth -- President and Chief Executive Officer
It's 25% of the folks that make up the 494,000. You got it.
Mike Petusky -- Barrington Research -- Analyst
Okay. And I didn't quite catch it at the beginning, I think you said something about 80% will use digital offerings. Was that from a survey of SilverSneakers eligibles or active?
Richard Ashworth -- President and Chief Executive Officer
So that was across our SilverSneakers base. So all of the folks that we have the ability to connect with, so the most of those would be enrollees. But that -- it's not 100% enrollees, but I would say the majority of them are.
Mike Petusky -- Barrington Research -- Analyst
Okay. So that 80%, those are folks that are already using or already in the program are somewhat at least somewhat active. Correct.
Richard Ashworth -- President and Chief Executive Officer
Yeah. Those are folks that are SilverSneakers members, that's the way I would say it, yeah.
Mike Petusky -- Barrington Research -- Analyst
All right. Good. And I didn't catch it, if you mentioned it, the collaboration on the virtual and Prime, did you say who that was with?
Richard Ashworth -- President and Chief Executive Officer
Yeah, we did not disclose the backbone of the digital. We didn't disclose that, so we're keeping that in-house. But it's a digital platform that enables thousands of videos to be available for members, also helped us on the logistics of how people get on and how they're tracked and those types of things, the data coming out of it.
Mike Petusky -- Barrington Research -- Analyst
Okay. And just in terms of Prime, do you have a sense of in terms of the membership and if I guess particularly the membership that are subscribers that are still left, I mean I would assume that a lot of that is sort of business travel usage I mean, and given that has been curtailed and probably will continue to be curtailed. I mean is that -- is that something that's concerning? Is that top of mind in terms of when you think about that business, or how should I think about?
Richard Ashworth -- President and Chief Executive Officer
No, I can see why you think that, but actually it's the opposite. So, what we don't see business travelers using multi-locations and because obviously travels reduced in the country that that's an impact. So it's actually not what we're seeing, I think it kind of just comes down to your investing in a benefit for a gym that you're used to go into and whatever the restrictions are in your area, you can only be there at certain times or they limit capacity in there or you have to wear a mask the whole time you're working out. Whatever the things are that may be a hindrance to you, or you may just be uncomfortable because of the situation at home with kids or with grandparents etc. and several parents.
And so we're not seeing that as business travel related, we just see as people that are being thoughtful about how they're going to get back to their routine. The encouraging thing for me, I think you just said this, but just to reiterate, it is, we're back to 50% of pre-COVID activity levels across our Prime book. And I think that speaks to the kind of accelerated return that active subscribers are coming back to the gym, and as we see different pockets of the country, depending on what state it might be and what time it, we institute restrictions or opens up restrictions. We do see that, that has a material impact on visits and how Prime users are utilizing.
Mike Petusky -- Barrington Research -- Analyst
Okay, great. Adam, forgive I didn't catch this. The $143 million to $145 million that was guidance for fiscal '20 on the SilverSneakers side, is that right?
Richard Ashworth -- President and Chief Executive Officer
Yeah. Healthcare only, that's right. Yeah, yeah.
Mike Petusky -- Barrington Research -- Analyst
Healthcare. Okay. All right, that's all I got. Thank you.
Richard Ashworth -- President and Chief Executive Officer
Thank you.
Operator
And there are no further questions, Mr. Richard Ashworth, I turn the call back over to you for some closing comments.
Richard Ashworth -- President and Chief Executive Officer
I just want to thank everybody for their time and for the conversation today and look forward to connecting. Thank you.
Operator
[Operator Closing Remarks]
Duration: 52 minutes
Call participants:
Ryan Wagers -- Chief Accounting Officer
Richard Ashworth -- President and Chief Executive Officer
Tommy Lewis -- Enterprise Chief Operating Officer and President of Nutrition Division
Adam Holland -- Chief Financial Officer
Jermaine Brown -- Credit Suisse -- Analyst
Nick Spiekhout -- William Blair -- Analyst
Alex Fuhrman -- Craig-Hallum Capital -- Analyst
Dave Styblo -- Jefferies -- Analyst
Sean Wieland -- Piper Sandler -- Analyst
Vikram Kesavabhotla -- Guggenheim Securities -- Analyst
Mike Petusky -- Barrington Research -- Analyst
