Tivity Health, inc (TVTY) Q3 2021 Earnings Call Transcript

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Tivity Health, inc (TVTY)
Q3 2021 Earnings Call
Nov 2, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Tivity Health Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

[Operator Instructions] I would now like to hand the conference over to your speaker today, Head of Investor Relations, Matt Milanovich.

Adam C. Holland -- Chief Finance Officer

Good afternoon, and welcome to the Tivity Health Third Quarter 2021 Financial Results Conference Call. Before we begin, if you do not already have a copy, the earnings release, supplemental information and related 8-K filed with the SEC are available on our website at tivityhealth.com. I would also like to highlight that our financial presentation within today's press release and supplemental materials are reflective of the divestiture of the Nutrition segment. Therefore, all results of operations related to that business are now reported within discontinued operations. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to 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 2021 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 SEC 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 M. Ashworth -- President, Chief Executive Officer & Director

Good afternoon, and thanks, Matt. Thank you for joining the call today to discuss Tivity Health's third quarter earnings results. Joining me on the call are Adam Holland, our CFO; Tommy Lewis, our COO; and Matt Milanovich, our VP of IR. As you saw in today's press release, our performance for the third quarter of 2021 was characterized by strong results in revenue, adjusted EBITDA and cash flow. We reported revenues of $126.3 million, adjusted EBITDA from continuing operations of $40.5 million, and free cash flow of $27.2 million. SilverSneakers continued its positive momentum during the third quarter, growing to 17.1 million total visits, a 12% increase compared to the second quarter of 2021. In-person SilverSneakers visits were 16.4 million, growing 13% from the second quarter even though government mask mandates were still present in 11% of our fitness partner location.

While we experienced some headwind from the Delta variant during the quarter, our recent trends have strengthened during October as the effects of Delta have somewhat subsided, and we continue to expect that in-person visits will accelerate next year. Further solidifying our confidence in 2022, adults over 65 continue to have the highest immunization rate in the nation, with 85% being fully vaccinated and 97% having received one dose according to the CDC. And our SilverSneakers poll surveys indicate that a significant percentage of our members have returned or intend to return to the gym. SilverSneakers digital visits were approximately 700,000 during the third quarter, a decline from the second quarter. Going into the fourth quarter, we are planning to increase marketing spend focused on digital and in-person visits. Our virtual platforms are an important channel for our SilverSneakers members. Through the first three quarters of 2021, 45% of the participants in our live with instructor virtual classes had never participated in SilverSneakers before, demonstrating that our proprietary virtual channel continues to attract and engage eligible SilverSneakers members who may not have otherwise engaged with us.

The combination of physical and digital fitness remains core to our strategy because it allows our members to use the benefit where they want, in the gym, at home or in the community. Looking ahead to 2022, we expect growth in virtual to be accelerated by social engagement and mental enrichment offerings in addition to our evolving virtual fitness programming. Our gym network remains strong as we ended the third quarter of 2021 with approximately 16,000 SilverSneaker locations. On average, our national gym network offers members access to a location within 3.6 miles of their homes and 1.6 miles in urban and suburban markets. As we recently announced, we're launching a customizable premium gym network in the first quarter of 2022. This expansion is expected to increase our total available network to more than 22,000 locations, one of the largest senior fitness networks available. Network renewals continue to meet our expectations, with many characterized by multiyear contracts, providing both visibility and stability for the future. Moving on to Prime. Our Prime business is meeting expectations.

We ended the third quarter with approximately 12,500 partner locations, similar to where we began the year, and 226,000 active Prime subscribers. Subscriber count remained consistent with the end of June even with the impacts of the Delta variant and remains higher than where we began the year. We anticipate that our subscriber base at the end of 2021 will position us nicely to grow subscribers in January, which is the beginning of gym season. Next, I just want to provide an update on our SilverSneakers health plan relationships. We're pleased with the continued strength of our client partnerships. As mentioned on our last call, this year's renewal season was very successful in the high 90% range, consistent with prior years, and some of our largest accounts are committed to contract lengths that are longer than our average duration. We play an important role with our clients during the Medicare annual enrollment period. So far this fall, our teams have facilitated nearly 400 events and trained close to 12,000 brokers across the U.S. In addition, we built an online resource center at silversneakers.com for clients and brokers that includes educational overviews, member-facing materials in multiple languages, videos and testimonials.

Our clients are integrating these resources into their sales messaging, broker and agent training and television commercials as a key element of 2022 annual enrollment because the SilverSneakers brand is a key differentiator. Our clients love the brand for its ability to draw new MA members and drive decreased medical costs for our members. As a reminder, from research earlier this year, an Avalere independent research study concluded that the total cost of medical care for seniors -- SilverSneakers participants was 16% lower than for nonparticipants. Now moving to an update on our strategy and our brand. We previously stated our intention to expand beyond a gym access company into a member-focused, data-driven engagement platform company. Our objective of engaging members through our trusted 30-year SilverSneakers brand beyond physical fitness is continuing to materialize with our recent partnerships for mental enrichment with gift setup and social connection with Stitch. In 2022, we expect these partnerships to contribute to top line growth and profitability.

Our SilverSneakers brand is extremely strong and valuable. We recently refreshed our Net Promoter Score survey, and it increased from 81 to 83, demonstrating growing brand equity. Our brand awareness among the general population of Medicare Advantage enrollees is 78%. This includes SilverSneakers members and nonmembers and is far higher than the next most recognized senior fitness brand. And for seniors that are not yet of Medicare age, when asked what comes to mind when thinking about wellness and fitness plans, nearly 40% are already familiar with the SilverSneakers brand. We are continuing to leverage the strength of our brand when building our member platform to drive additional channels of engagement. Before wrapping up my prepared remarks, I'd like to highlight the strength of our balance sheet. Over the last 12 months, we've divested Nutrisystem, reduced our leverage ratio from 3.81 to 2.02, refinanced our capital structure, and announced a $100 million share repurchase authorization.

Our strong cash flow generation, as further evidenced by this quarter's results, allows us to continue investing in growth and return cash to our shareholders. I'm really excited about the future of Tivity Health. Our core business is strong and growing. We're adding new channels for our members to engage with the SilverSneakers brand. We're broadening the access that our members have to physical locations and digital access points. This gives us confidence in our expectation that we'll grow revenue, adjusted EBITDA and free cash flow in 2022. We would not have this type of strong performance without a fantastic team behind me. I'd like to thank our team for continuing to execute with great results to help our members and our clients. I'll now turn the call over to Adam.

Adam C. Holland -- Chief Finance Officer

Thank you, Richard. Today, we reported adjusted EBITDA of $40.5 million, reflecting the continued strength of our business. Revenues for the third quarter were $126.3 million. SilverSneakers revenue was $95.8 million, an increase of $27 million or 40% over the prior year, driven by an increase in revenue-generating visits. As expected, revenue from fixed per member per month fees declined to 44% of our total SilverSneakers revenue compared to 59% in the same period last year. We expect this percentage to continue to decline as we move into 2022 and generate more member visits as part of our overall revenue mix. We ended the quarter with 17.8 million health plan members eligible for SilverSneakers, an increase of 7% year-over-year. Through anticipated monthly age ends, we are on track to meet our goal of approximately 18 million eligible members by year-end, an objective we stated at the beginning of the year. Total SilverSneakers visits were 17.1 million during the third quarter of 2021, compared to $9.1 million for the same period last year, with monthly average participation of 4.2% compared to 2.4% last year.

Within the 17.1 million visits, 714,000 visits were live virtual with instructor. And now to Prime. We generated $24.3 million of revenue in Q3, an increase of $2.6 million over the same period last year. We ended the quarter with 226,000 active Prime subscribers compared to 227,000 subscribers at the end of the third quarter in 2020. We had approximately 3.3 million gym visits from Prime in the third quarter of 2021 compared to 2.3 million in the prior year period. For WholeHealth Living, during Q3, we recognized $6.2 million in revenue, a $1.2 million year-over-year increase. Turning to our Q3 2021 balance sheet and cash flow. We ended the third quarter with cash on hand of $51.8 million, total liquidity of $151 million and a leverage ratio of 2.02 times. As of September 30, 2021, net debt totaled $333.3 million. During October, we made all required amortization payments through 2022.

Our free cash flow for Q3 was strong at $27.2 million, reflecting positive operational performance, partially offset by working capital. Year-to-date, we have produced free cash flow of $56.3 million. Now turning to guidance. We raised our 2021 revenue, adjusted EBITDA and cash flow guidance in today's press release given our continued strong performance in both SilverSneakers and Prime. Specifically, we tightened our revenue range to $475 million to $485 million. We increased our adjusted EBITDA range to $156 million to $159 million, and we increased our free cash flow range to $70 million to $79 million. We now expect SilverSneakers participation to return to approximately 60% of pre-COVID levels by the end of 2021, and Total SilverSneakers visits for 2021 to range from 60 million to 63 million visits. Finally, with respect to capital deployment, we will maintain a disciplined and thoughtful approach to capital allocation by deploying capital where we believe it can drive the greatest value to our shareholders. Our recently announced $100 million share repurchase program is aligned with that commitment and underscores our company's ability to generate strong cash flow. I'll now turn the call back over to the operator to open the call for Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Ryan Daniels with William Blair.

Ryan Daniels -- William Blair -- Analyst

Thanks so much for taking my question. Congrats on the strong quarter. I want to dig into the virtual visits. You mentioned that 45% through the year now are new members. And I'm curious how sticky are those members? And are you seeing them convert to gyms? Or are those new members sticking with the digital platform?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Ryan, thanks for the question. It's Richard. I'll start, and maybe, Tommy, if there's something you want to weigh in. I think in general, the virtual members are starting to switch back to in-person, which is what we've seen all the way along. And we stated virtual will continue to be important for us in the omnichannel offering. I think the biggest point is, and to the heart of your question, we see 45% of those virtual users are new to SilverSneakers. That's about double what we see for people walking into our fitness locations as being first-time users. So we see it as a great acquisition channel. In terms of stickiness, we're finding them pretty sticky right now. Now we're still early on in digital but we are finding some comfort in the fact that those users are maintaining. Tommy, anything you want to add?

Thomas E. Lewis -- Chief Operating Officer

Yes. The only thing -- Ryan, the only thing I would add is that the 45% that are new to SilverSneakers, they have never utilized the gym benefit before. So this is a great acquisition vehicle for us. And we're finding those that came in through the digital channel tend to be -- that tends to be their preferred channel. There is a little bit of crossover there, but those that join and begin in virtual tend to stick with virtual.

Ryan Daniels -- William Blair -- Analyst

Got it. That's helpful. And then great expansion of the gym network up to 22,000. I'm curious, can you go into a little bit more detail about the opportunity that affords you? I think you mentioned it's a customizable network. So I'm curious if you're going to allow payers to kind of pick and choose what gyms going to network based on their location and maybe how that changes the revenue model or how that impacted renewals or contract terms during the period as it sounds like those were pretty favorable.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. Good question. And in general, the short answer to your question is yes. It's -- we're going to make this available for our health plans to consider. We made it where it's customizable so that they can have some choice into which locations are really important to them and they want to add. What we were doing is listening to our members and our health plans. The boutiques are kind of an important part of some of our members' lives. And by adding them into our into our premium network, we can make those locations available. Again, it's still going to come down to a discussion with the health plan, to your point, on how they want to construct that -- on how they want to construct it.

Ryan Daniels -- William Blair -- Analyst

Okay. And then final one then I'll hop off. I don't know if you want to go into this level of detail. But on the contract renewals, given that you're seeing an uptick in virtual visits, which are probably lower cost and higher margin for you, were there any pressures you faced or concerns among payers about continuing with the same fee structure such that we might see a shift in the level of PMPM and per visit fees absent a change in the end market utilization just because of any contract changes?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. Thanks, Ryan. Three good questions. So what I would say in general is that the macro setup for virtual and the value equation of it is resonating with our health plan clients. So they really appreciate the virtual -- the level of that visit, the engagement that they're getting from their members and the value that you get from it. Look, like any contract negotiations, those conversations are always ongoing on, on the revenue side just like it does on the cost side, on the network side. The way I would describe it is that it's going to stay in line with what we've historically seen. And as we drive more volume into digital, there may be more margin there. But in good faith, we work with our health plans to make sure they're comfortable with the economics. I don't know, Tom, is there anything you're seeing in health plan around digital?

Thomas E. Lewis -- Chief Operating Officer

No. Those that were hybrid or utilization-based that tended to renew that way and the same for PMPM. We're really excited about the renewal season. As Richard mentioned in the prepared remarks, a high 90% renewal rate. We were able to add some new geographies to existing clients as well as add some new plans and new logos, so good renewal season.

Richard M. Ashworth -- President, Chief Executive Officer & Director

And those all include digital, too, right? So I think that's an important part of a demonstration of the value of the digital channel.

Thomas E. Lewis -- Chief Operating Officer

Yes, definitely.

Operator

Your next question comes from Jailendra Singh with Credit Suisse.

Jailendra Singh -- Credit Suisse -- Analyst

Thank you and thanks for taking questions. So I understand we need to wait until 4Q results for 2022 outlook. And to all the color you guys just gave about new plant at each new geography with the MA AP underway and based on your current contracts with MA plans and they're producing their market, I was wondering if you're willing to share any expectations with respect to the eligible lives for SilverSneakers in 2022, of course, excluding the UNH contract. And related to that, will 2022 be the first year where we start seeing some meaningful impact of all the initiatives around engagement platform, deepening relationship with health plan partners, et cetera? Or is it still too early?

Richard M. Ashworth -- President, Chief Executive Officer & Director

I'll just start and then Adam, I think for the -- I'll take the latter part first. Yes, we believe that our new initiatives will contribute to top line revenue and to profitability for 2022. And then you're right, Jailendra, we'll a little bit until the Q4 comes out on more specifics. But as we said, I mean revenue, adjusted EBITDA and free cash flow will all be greater in '22. And that will be a corresponding with an increase in life count.

Adam C. Holland -- Chief Finance Officer

Yes. Jailendra, I appreciate the question. I hope you're doing well. With United taken out, we still won new business this past year. We had expanded markets with other clients. And of course, we have the natural organic tailwind of Medicare Advantage growth. So those three combined offset the loss of the United markets, and we expect to start next year with more eligible lives and then grow with the normal course age ends as we proceed through 2022.

Jailendra Singh -- Credit Suisse -- Analyst

So at least a minimum in line with the overall market growth for Medicare Advantage, like that probably at least a good starting point?

Adam C. Holland -- Chief Finance Officer

Yes, that's a decent starting point when you adjust for the United lives being taken out.

Jailendra Singh -- Credit Suisse -- Analyst

Got it. And on SilverSneakers visit outlook, which was reduced for both total and virtual, was that driven by visits in third quarter falling short of expectations? Or is it that you're taking more conservative view about Q4? Or is it a combination of both? Can you just provide some color there?

Adam C. Holland -- Chief Finance Officer

I think it's a little bit of both, Jailendra. We saw a bit of a slowdown from our expectations in the kind of the later part of Q3. As October matured and Delta subsided, that has rebounded a bit. But where we guided, it's a slight decrease in visits. We do have the normal holiday seasonality, which we're also accounting for, which happens every year, but overall still feel very strong about where the growth prospects are. We're still increasing participation percent, and we see a lot of great green shoots coming out of the ground for next year's gym season, which, as you know, starts in January, and think with what we're doing internally plus the increase in eligible lives, we'll be in a good starting point for 2022.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. One last one before I hop off here. With respect to get set up platform you guys plan to launch in January of next year, is that essentially one more way of deepening your relationship with your members? Or is there any direct financial benefit from health plan, which we should be keeping in mind? Trying to understand like what exactly the benefit will be there from -- for you.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. I appreciate the question, Jailendra. The way I think about it is two main areas. One is absolutely for the member, it's a great experience of continuing educating and learning and being able to establish new relationships all under the eyes of kind of mental enrichment, similar with our Stitch relationship, which is more purely social or get set up has some kind of mental stimulation and learning to it. So we know members are value from that. We know that social connection and loneliness is a big issue and drives healthcare costs, and isolation is a real problem within our member base. So we love for what it does for the members. From a health plan perspective, they want engagement of this group. They want this group to want to look forward to things, to have things to experience and to just be healthier and happier. And we know that mental enrichment, social connection and physical activity are the three top drivers of your overall outcomes cost outside of your genetic code. And so for us, that's why we went after social connection and mental enrichment. And so it will be similar to SilverSneakers in terms of the commercial setup, depending on how it applies for hybrid and for PMPM. What we're excited about is to see how many people we can get engaging in this new experience and new offering.

Jailendra Singh -- Credit Suisse -- Analyst

Great. Thanks and congrats on the quarter.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Thanks, Jailendra.

Operator

Your next question comes from Steven Halper with Cantor.

Steven Halper -- Cantor -- Analyst

Hi, I was just wondering about sequential decline in virtual visits again. And where did that come in relative to your expectations? Because I understand that the people are going back to the gyms, but I felt as though that number would have been higher.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. It's a great question, Steve. Good to hear from you. Remember that our virtual visits kind of came in two main buckets, right? One was our live, instructor-led visits that are done by our trainers. That was about roughly half of the virtual visits. And the other half came from our flex instructors, which are smaller, more community-based, more local. The significant reduction in virtual came from our flex instructors. Our live instructors have actually held very consistent in volume over the months and over the quarters. We haven't put any marketing against it at all really.

We've been very quiet about it. And the drive back to physical took a lot of that volume out. To your point, what we'd like to have seen more in digital, for sure, and that's why we're going to invest in Q4 in that and believe that we're going to have a really strong start for Q1 moving on. The one thing we're still continuing to see is more first-time users. If you recall, a quarter or two ago, we were in the 35% to 36% range for new through that channel. And now we're tracking closer to 45%, 46%. And so we're going to invest behind more acquisition, which we know our health plans also appreciate. So we'll do that going into Q1.

Operator

Your next question comes from the line of Sean Wieland with Piper Sandler.

Sean Wieland -- Piper Sandler -- Analyst

Hi, thanks very much. So I just want to confirm, given what you're talking about on the United contract that we should still be modeling a $20 million hit in that business next year. And have you renewed the remaining -- all of the remaining group contracts that you need there?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Sean, it's Richard. So yes, I mean the same value that we had placed on that contract remains the same. Nothing has changed there. If your question is on the remainder of the United Group lives, we still have those contracted through the end of this year, and we're just having active discussions with them to finalize for '23 and beyond. We feel really positive about that going. It's going well. In terms of all the rest of the group lives plus the individual lives of all the contracts that need to be renewed, all of those are secured, and that's why we're seeing live growth for the beginning of next year and then, of course, throughout the year with the agents.

Steven Halper -- Cantor -- Analyst

And so all of those group lives amount to how much approximately in revenue here?

Adam C. Holland -- Chief Finance Officer

I don't think we've disclosed that specifically, Sean, but I'll get back to you on it.

Sean Wieland -- Piper Sandler -- Analyst

All right. Well, that's why I was asking. And then -- so when -- I think you said that SilverSneakers is at 60% of pre-COVID levels. Is that right?

Adam C. Holland -- Chief Finance Officer

Correct. That's right. And the way we measure that, Sean, just to be clear, is that's a monthly average participation rate for the total number of participants in a given month divided by the total eligibles compared to pre-COVID, so call it December of 2021 versus December of 2019. So we think we'll be at roughly 60% of those 2019 levels.

Sean Wieland -- Piper Sandler -- Analyst

Okay. And so what does the path back to pre-COVID levels look like? How long will that take? And what are the levers to get you there?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. I think the levers are not having restrictions at gym networks and across the states, news cycles around variants and things like that. The Delta variant plus having 10%, 11% of our partner locations having to have some restrictions and the ability to attend, timing, mask-wearing and things like that, I think, still have some pressure on us. But going into Q4, which is normal gym kind of low season anyway. And so we've got plans for marketing to make sure the awareness is there. Our fitness partner locations are driving heavy on safety and making sure they're following the rules and doing what they're supposed to do. They've been good partners in that. And I think for us, continuing to drive an acquisition channel in digital and to work like we have through AEP, with our health plans on co-marketing and messaging, which we were very prominently displayed through AEP and still are, I think, will be a big driver of getting people back into the program. Exactly when that is, it's hard to know at this point. The recovery in quotations has been somewhat volatile across -- as a generality, not just in fitness season or fitness business. But we're looking for a strong start in gym season in January. We feel confident about that based off our survey data and what we're seeing in October thus far.

Operator

Your next question comes from Mike Petusky with Barrington Research.

Mike Petusky -- Barrington Research -- Analyst

Good evening guys. A few questions. Richard, have you guys -- I guess I should ask, do you have the ability to sort of look at the folks that have not come back to the gyms and have not engaged virtually and sort of target market and sort of -- really sort of drill down to those folks that have just simply not come back but are still around and theoretically capable of coming back?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. And that's one of the benefits of the investments we made in the data platform and the omnichannel investments. Those are enabling us to target market direct plus using social and other ways to go at the way we talk about it. Here is kind of the low-hanging fruit, right? People who have demonstrated in the history, the willingness to want to engage in the program but recently have not. So we do that in our Prime business as well for those that suspended or those that canceled. We know that those are good places to start, trying to hit that behavior, gyms back up again. So short answer, Mike, is yes.

Mike Petusky -- Barrington Research -- Analyst

Okay. And then I guess on -- this is sort of a longer-range question. I'm not exactly sure how to ask it. But as you sort of look at the 4.2% participation rate -- and obviously, you're making progress from over the last several quarters, but as you sort of think about that longer term, I'm just curious if we're looking out three to five years. This isn't an official guidance. But if you're looking out three to five years, I mean is 10% participation -- is that the right figure? And let's just say for if -- it is the right figure, like how much of that would be, in your view, physical versus social and mental enrichment and maybe other down the road? I mean how much of sort of the ultimate target do you think is related to your physical offering?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes, yes. It's a good question. I mean not -- obviously not giving specific guidance around this type of question, but I understand why you're asking it. I mean the way I see it is three to five years from now, we'd be much higher than 10%. So I think we'd be at significant engagement levels that are much higher than 10%. And I think exactly what the compartmentalization would be between the two new offerings we just launched plus the many more that are coming, in addition to our existing fitness business, I think if you put it all together, we should be a significant and material engagement driver for health plans in the MA space with seniors. And it will just depend, Mike, on which ones are really successful, which ones members are finding a lot of value out of the engagement on. We're going to keep getting smarter. We're going to keep getting better. We're going to keep offering new content, new class times, new genres, new opportunities across all three of these businesses between physical, mental and social. And so it's hard to give you an exact -- obviously, we've done a lot of work in thinking about what the future could be like. But in terms of getting guidance around it, obviously, we're not doing that. But I would just say that it's going to be significantly higher than what we've historically had here.

Mike Petusky -- Barrington Research -- Analyst

Do you think it's likely that social enrichment and other could someday actually be more in aggregate than physical in terms of the participation rate? I mean is that what you envision long term? Or am I getting way ahead of myself?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. Probably not. I mean maybe an actual quantity of events occurring. But in terms of value and things like that, I think physical has really demonstrated a strong value proposition over the years. Significant number of health plans are -- continue to invest behind physical fitness for supplemental benefit in Medicare Advantage. And it's a true differentiator for acquisition and retention not only for the healthcare benefit. So I think as social engagement and mental enrichment over time continue to prove -- contributory to outcomes that, that will get better. But I still think our fitness business is going to be very, very large and continue to grow from where it is today into the outer years.

Mike Petusky -- Barrington Research -- Analyst

Okay. Last question. On the social connection mental enrichment piece, you alluded to the fact that you expect to actually see a financial impact from those initiatives in '22. Can you just give an example or two of, "Hey, this is how we monetize this. This is what mental enrichment looks like. This is what social connection looks like. This is how this actually occurs with the end-user customer?"

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. So the end-user customer comes into silversneakers.com. If their health plan allows them to be eligible for that experience, they have that opportunity to -- once they sign in, to be able to go to that experience. They consume the experience just like they do with our live virtual classes on fitness because these are all live classes that are actually encounters that are live with individuals. They can do that on the social side or they can do that on the mental enrichment side. And that is similar to our SilverSneakers fitness economic setup is the way that I would think about it. And then that's just remunerated back to the plan who funds those as part of their portfolio of SilverSneakers experiences.

Mike Petusky -- Barrington Research -- Analyst

Sorry. Can you just give an example of like a mental enrichment experience?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes, sure. So I mean one example could be someone wants to learn how to do healthy cooking at home. And so there are classes on our mental enrichment platform to get set up that are how to cook healthy for low dollar amount. So how to cook a healthy meal under $5 could be one of the classes. You can go on there and learn how to go to the grocery store, which things to buy. Then you can actually cook your meal while others are cooking their meals too, and you have a person leading that who is a retired chef who was a chef for many, many years. And so that's one example. There are others. There's even mindful games that people can play and they can compete with each other on their -- we have -- and that gets set up. If you go and even look at it on your own, you'll see all the types of content. The content is so wide-ranging. Mike, it's crazy. It's -- there are so many opportunities.

Operator

And our last question comes from David MacDonald with Truist.

David MacDonald -- Truist -- Analyst

Good afternoon guys. I just have one question left. I wanted to circle back and actually just follow up on Ryan's question from earlier around contracting. You guys mentioned length of contract and seeing some of your renewals renew for longer contract cycles. I've always thought of this as kind of a three-year contract, about 1/3 of the book up for renewal every year. Should we be thinking about a lower percentage annually up for renewal maybe moving more toward every four years and about 25% of the book? Or how much of those are being extended, I guess?

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. It's a great question. So two of our top five plans renewed for five years. And so that's just two data points. I think in general, what we're seeing is more of a spirit of less from vendor and more kind of partner. And so it's like, hey, maybe if we go into a longer arrangement, we can invest more together, we can do more together over time. And so I don't know if it's every four or if it's 20% or 25% every year, but it's definitely going to come down a little bit from the kind of 1/3, 1/3, 1/3 because we're seeing longer contract terms with many of our larger clients, too. So we go into these conversations, trying to figure out how to get a win-win best for the health plan and for us. And the longer term those contracts are, I think the more stability there is. We still have to perform. We have to do everything that we say we're going to do for our health plan, of course, and that's our commitment. But the longer terms, I think, are a demonstration of the value that those health plans find with Tivity Health.

David MacDonald -- Truist -- Analyst

Okay. And then just last question. When you guys talk to payers, is there actually a preference for some of these remote visits where they can actually tell when someone signs on, when they sign off, how much they're actually exercising as opposed to they go to the gym. And once they sign in, it's a little bit of a black hole in terms of knowing exactly how much exercise that person is actually getting.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Yes. Great question. And it's a little all over the place, to be honest. But we're seeing a lot of our health plans are finding the data that's coming back from virtual to be very helpful, right? To your point, when they go to the gym, we're not exactly sure what they did that day, how long they were there, how many calories they burned, exactly what equipment they used or didn't use, etc. And in our digital visits, we know a lot more because we know how long they're there, and we know the type of activity that we're doing with them. I would just say that the plans are just really appreciative that the digital channel was created and exists and that they're getting their members to use. Back to an earlier question around the volume of digital, I think another thing we're going to start to find here is plans are going to help us in trying to point their members to digital as one of the choices. We want to be where members are. They're not force them to go anywhere. So if they want a community activation or if they want a gym network or if they want a virtual, we're going to have all three of those available for them. And I think our health plans are becoming more part of the process in that in terms of making those other options like flex or like virtual in addition to the gym network in their messaging to their members. And I think that's going to help over time in overall volumes.

Operator

All right. thank you. I'll hand the call back to Richard Ashworth.

Richard M. Ashworth -- President, Chief Executive Officer & Director

Thanks, Tom. I want to appreciate everybody's time and attention. Thank you for dialing in. Hope everybody has a wonderful week. Take care. [Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Adam C. Holland -- Chief Finance Officer

Richard M. Ashworth -- President, Chief Executive Officer & Director

Thomas E. Lewis -- Chief Operating Officer

Ryan Daniels -- William Blair -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

Steven Halper -- Cantor -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Mike Petusky -- Barrington Research -- Analyst

David MacDonald -- Truist -- Analyst

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