Tivity Health, Inc.
Q3 2016 Earnings Call Transcript

Published: 2 Nov 2016

[Operator:]

Please standby, we’re ready to begin.

[Chip Wochomurka:]

Good afternoon. This is Chip Wochomurka, Vice President of Investor Relations for Healthways, welcome to our Third Quarter Conference Call today. Today’s is being recorded and will be available for replay beginning today and through November 12 by dialing 719-457-0820, and the replay pass code is 6199906. Replay may also be accessed for the next 12 months on the company’s website. To the extent any non-GAAP financial measures discussed in today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in today’s news release, which is also posted on our 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 Healthways’ expected quarterly and annual operating and financial performance for 2016 and beyond. For this purpose, any statements made during the call that are not statements of historical fact may be deemed to be forward-looking statements. And without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. We hereby caution that these statements may be affected by the important factors among others set forth in Healthways’ 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 any 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 being I’ll turn call over to our CEO, Mr. Donato Tramuto.

[Donato Tramuto:]

Thank you, Chip and good afternoon, everyone. Thank you for being with us today for Healthways’ third quarter 2016 conference call. Along with Chip, I’m here today with our new Interim Chief Financial Officer, Glenn Hargreaves. I do hope that all of you saw the press release announcing Glenn’s appointment that we issued just an hour ago. We are also joined by Alfred Lumsdaine our former Chief Financial and Administrative Officer. Alfred has continued to provide consulting support to us through his transaction to ShareCare. Chip will lead off this afternoon with some remarks about our results for the third quarter. Following those remarks I also have some comments on the quarter and how I see our strategy and opportunities unfolding. Thereafter, we’ll open the call for your questions. Chip?

[Chip Wochomurka:]

Thanks, Donato. Let me take a few minutes to walk through the important pieces of what today at first blush to all of you may seem a little bit complicated set of numbers specific to the third quarter results. I will follow that with some comments for the fourth quarter of 2016 for our ongoing Network Solutions business. Turning to the third quarter results, I would like to start by recapping some of the key financial metrics. Revenues from continue operations for the third quarter were $125 million compared to $113.5 million for the third quarter of 2015. Net income from continuing operations was $4.8 million for the quarter, compared to just under $13 million in the third quarter last year. In our earnings release, we focused on the significant items in the tax line of the profit and loss statement that impact the year-over-year comparisons for net income. I believe those items are thoroughly explained as outlined in the release. Our continuing operations generated EBITDA of $24.4 million for the quarter, compared to $28.2 million for the comparable quarter last year. In our earnings release today, we identified the key items that impact the year-over-year comparison of EBITDA. As a quick reminder, we previously filed pro forma historical financial statements for our continuing operations. Let me also remind you that there are limitations to the comparability of those historical statements to our current financial statements. So as you try to bridge the performance of comparable quarters in particular, please be aware of this and that those comparisons are not necessarily indicative of the performance of the Network Solutions business going forward. So with that background we highlighted today several items in our release that reduce the EBITDA reported in our third quarter 2016 results compared to the third quarter of 2015. And that one includes $1.1 million of restructuring expenses, $700,000 of business separation costs and $1.9 million of colleague incentive compensation. These items collectively bring third quarter EBITDA year-over-year to roughly equivalent. However, I would caution again against making direct quarter-over-quarter comparisons of the 2015 pro forma statements to the 2016 actual operating results. The 2000 pro forma statements are the output of a modeling exercise of separating the two businesses and they are not necessarily indicative of the operating performance of the continuing operations, going forward and that’s in particularly the case with regard to general overhead corporate costs. Now to focus for a moment on updating our restructuring and business separation expenses. As we mentioned in the release, the total cost to fully separate the Network Solutions business from the discontinued operations and create a fully autonomous business are now expected to be in a range of $4 million to $5 million. Examples of these costs include expenses to fully separate the information technology infrastructure, standup separate back office systems, as well as the rebranding of the company and we incurred about $700,000 of these costs in the third quarter. So the balance of these costs will impact our absolute level of EBITDA in the fourth quarter and we will be sure to quantify these costs for you again, when we report our fourth quarter results. Also in our release today we highlighted the work we initiated. To restructure our corporate support infrastructure to fit the ongoing needs centered on our Network Solutions business. We now estimate that those restructuring costs that relate to this work will fall into a range of $6 million to $7 million and that the work will generate annualize savings in a range of $15 million to $16 million. As we reported in our release today, we continue to anticipate that as much as half of these savings will be utilized to invest in specific long-term initiatives to foster additional growth in 2018 and beyond. We incurred $1.1 million of the costs in the third quarter and expect the majority of the remaining cost will be incurred in the fourth quarter and the balance in the first quarter or a small portion continuing into the first quarter of 2017. Now just a few comments on our debt profile. As expected, our absolute level of funded debt rose by approximately $24 million in the third quarter compared to the end of the second quarter. As we finalize the disposition of the discontinued operations including the $25 million payment to ShareCare. Largely as a result our leverage ratio rose to 2.4 times. We expect to end the year with funded debt in a range of $215 million to $225 million and a leverage ratio of below two times. As we said in the release this change is due impart to the conversion of a $20 million convertible subordinated promissory note by CareFirst in October. And updating our outlook with some concluding statements, we expect our fourth quarter results to remain similar to those of the first three quarters of 2016. As is typical in the fourth quarter, we expect an uptick in the marketing support cost for SilverSneakers aligned with the open enrollment period for Medicare advantage plans. However we also expect the modest decrease in both interest and depreciation and amortization expense moving forward. EBITDA margins excluding business separation cost and restructuring cost are expected to remain above 20%. And as we head into 2017 we continue to have an initial view that revenue should rise with an organic growth rate at least in the range of upper single-digits. Driven largely by the work of our restructuring of our corporate infrastructure costs, EBITDA margins should rise to a level solidly in excess of 20%. Finally we have not spent much time discussing earnings per diluted share, but as you know we have returned to a normalized effective tax rate going forward. We've also seen a rise in the outstanding share count, driven largely by this appreciation of our stock price during the third quarter. As a reference point, the fully diluted share count was approximately 36.5 million shares for the third quarter of 2015, rose to approximately 37.2 million for the second quarter of 2016. And now at the end of the third quarter of 2016 sits at approximately 38.4 million shares. With that, I'd like to turn the call back over to the Donato for some additional remarks.

[Donato Tramuto:]

Thank you, Chip. We are pleased with the third quarter results, which met all of our expectations and further confirms our assessment of the solid opportunities that we have with our Network Solutions business. Our revenue growth of more than 10% for the quarter is in line with and a little bit better than the upper single-digit expectations we've discussed for 2016. And as Chip reviewed, our EBITDA margin excluding restructuring and business separation costs was 21% for the quarter, which continues above our outlook for 20%. We believe our earnings results for these last two quarters and our outlook for the fourth quarter shade further light on the powerful financial engine inside the Network Solutions business. With essentially all of the remaining impact of the sale of the total population health services businesses coming into the financial statements for the third quarter, we now have two meaningful financial attributes moving forward. First, we will carry forward NOLs of approximately $188 million, which means we will essentially be paying very little if any cash taxes well into 2018. Second, we expect to have now a very clean and simple financial business model that should be reflected in the relatively simple financial statements. We expect to issue in the future periods. As shared last quarter and with the ShareCare transaction now complete, we can now fully focus on actively implementing our strategies to drive the growth of our three businesses within the Network Solutions business SilverSneakers, Prime and Physical Medicine. As part of that furious focus over the last few months, I have been out on the road visiting the senior leaders of some of our largest health plan clients, as well as interacting with our members, the very people who in particular utilize our SilverSneakers program. And lastly, learning from the owners and the leaders of the participating fitness centers who are members of our extensive network of more than 13,000 locations. It has become clear to me that every customer we have met sees the uniqueness and the magic of the program and they understand the value of what we offer. And lastly, they appreciate and recognize the commitment we are providing today as a new organization, fiercely focused on targeted population health. In many cases, though not in all cases, these clients utilize all three of our networks. However, I have also learned the unique opportunity before us to further educate our SilverSneakers clients on the value proposition associated with our Prime and Physical Medicine networks and that situation I believe is an opportunity for this company. With regards to SilverSneakers, our clients are pushing for more engagement, more participation and though we have improved engagement in the last number of years, we now have the financial capacity, the investment appetite, as well as the focus of the entire company to make the relatively modest investments that we know are critical in terms of reaching new participation goals. Our clients acknowledge the strength of our brand, not just the stickiness of the brand name but its ability to move the needle, to move if you will the seniors into a more active state where the benefits they experience from improved health outcomes, clearly align with our value proposition to that of our customers. I have also had the pressure to interact with members who utilize the SilverSneakers program and without an exception into a person members have conveyed to me the value they place on the physical activity, the social interaction and networking and the emotional strength they gain from participation. They also have made it clear, in one case in front of a health plan CEO that they would leave their current plan to follow SilverSneakers to another competitor plan if necessary. Another member age has 89 shared with me that SilverSneakers is his life. And a 93 year old member without any prompting statement that she would never have gained 23 friends she now has as a result of the SilverSneakers program. In fact, she told me that SilverSneakers is her strong motivation to want to live and to get up every morning with a positive attitude. And I have visited with participating location leaders. The owner of one health spa and fitness centers shared with me the extraordinary sticking up of the SilverSneakers brand, reminded me that at 10 O’clock in the morning you don’t want to be near the fitness center as 30 cars of seniors driving there are in front of you, but she related a story that basically touched my heart. At this particular center apparently when a SilverSneakers member dies, the center ends up taking a pair of Sneakers and spray paints it silver and then hand it in the center of the facility so that other SilverSneaker member can pay their respect and homage that the member that they lost, the member that they had socialized with and the member that they truly loved and respected. In my 37 years working in the healthcare industry, I have never witnessed this extraordinary level of brand loyalty, nor have I seen the fierce alignment of our value proposition among these three constituencies the client, the member and the participating location all focus on insuring positive health and social outcomes through the increase of engagement and participation. This brings me to a brief reminder about our ABC strategy which we discuss in depth that our Investor Day in August. This strategy is actually very simple to understand. A is add more eligible members in all three networks. B is built more empowerment, engagement and participation in the eligible population. And C is collaborate with other partners by leveraging our brand to introduce new products and services. In our Investor Day presentation, which is available on our website, we used SilverSneakers as an example to illustrate the growth opportunity for Healthways simply explained today there are 13.4 million members of Medicare Advantage and Medicare Supplement who are eligible to participate in SilverSneakers and we expect this number to increase in 2017. Off that number roughly 20% or 2.6 million members have actually registered into the program and tried SilverSneakers at least once. However, only 1.8 million members have actually participated in the last 12 months and in reality only above 1 million members participate on a routine repetitive basis each month that equates to our current participation rate, which is about 7.5%. As you have most likely figured out, we have significant opportunity to grow this business and the opportunity to do all that requires us to get there requires us to have smart data and research. And over the last number of weeks and months, we have been conducting that research getting to the key assumptions, testing them and then defining which tactics should be applied as well as understanding the behaviors that we have to modify and then of course developing a budget that will incorporate that work into 2017 financial plan. I would remiss if I did not today recognize our more than 500 Network Solutions collogues who’s unwavering efforts and unmatched passion over the last decade have helped to solidify our market position. They work day in and day out to generate the results that are being reported to you today. This fact has been shared with me without exception by our customers, our members and the owners of the fitness centers all of whom have recognized the unique skills, passion and unmatched commitment our colleagues have and continue to bring to all three networks. This brings me to how we have organized the leadership team at Healthways to effectively execute on our strategy. We announced in September that we have created three key positions to focus on the ABC strategy. Our Chief Growth Officer, Steve Janicak, our Chief Experience Officer Janet Calhoun and the role of Chief Operating and Product Officer, which today we announced has been filled by Ulya Khan. I am very confident that we have an outstanding team in place. Their individual and combined expertise and experiences uniquely qualifies them to successfully lead the execution of our strategy. My job is to bring the entire leadership group into functioning as an effective, the efficient and empowered team. Along those lines let me comment on the additional press release we issued this afternoon announcing Glenn Hargreaves as our Interim CFO effective immediately. Glenn has not only the skills and experience to be an effective CFO, but he also has my full confidence, as well as that of our Board and the respect and aberration of the team he has built over his 11 years career at Healthways. I have had the distinct pleasure of working with Glenn both during my tenure as Chairman of the Board, as well as during the last year as CEO and I kind of tested his steadiness, his financial acumen and his deep knowledge and understanding of our business. Now we move forward focused on both delivering a solid fourth quarter and full year solid results that Chip outlined in his comments, as well as developing our final plans for 2017 that we expect to share with all of you in our next call in February. Lastly and coincidently today I start my second year as a CEO of Healthways. As I look at where we were one year ago, I am very pleased and proud of what has been accomplished. However, I am not one to look back but rather to look forward. Hence allow me to once again restate what is been shared numerous times over the last few months. We believe we have attractive opportunities to continue to grow this business and we are situation in a market where membership and users of our products are growing every single day. We are now fiercely focused on targeted population health and this focus strategy supported by smart investments will we believe enhance an already strong earnings profile. We have the right and experienced team in place and we are now solely focused on this business our Network Solutions business as we move forward. In closing, we are already well along in our work to rebrand the enterprise, we expect to complete that work as we enter 2017. And we look forward to sharing that information with you as soon as we are ready. Operator would you please open the floor now for any questions?

[Operator:]

Thank you. [Operator Instructions] And we'll take our first question from Ryan Daniels from William Blair.

[Ryan Daniels:]

Yeah thanks for the color and for taking the question. Another quick follow-up just on the CFO transition, obviously a very short period that Robert was there. So anymore color on that, I just want to ensure that there are no any disagreements on accounting or just any color you can provide to ensure us that was nothing more than a cultural fit?

[Donato Tramuto:]

Yeah it’s just personal reasons there is nothing related to financials at all.

[Ryan Daniels:]

Okay, I appreciate that. And then if we look at the quarter obviously solid EBITDA if we figure exclude the one-time item, I guess the one I would have more of a question on is the compensation cost accruals, do you envision that occurring at a similar level on a go forward basis or was there some catch up in the period that kind of made that number larger and that should depress a little on a go forward basis?

[Donato Tramuto:]

Yeah let me answer that in two ways, first of all as you know last year I made it clear when I arrived that we did not have a strong performance reward program and we changed that in the fourth quarter last year. And so we now have as you can see with very good performance in the company we have an opportunity to reward our colleagues. But to answer your question more specifically, yes I don’t think you’re going to see as large of a accrual next year, some of this is because of great performance in 2016 and we feel that that will level off at a lower level next year.

[Ryan Daniels:]

Okay, perfect. And then maybe a more fundamental question about the business. Looking forward one of the things you talked about is the big opportunity given that you only have a 7.5% participation rate. So I am curious if you have done some of the studies, what your view is on the biggest opportunities to drive growth meaning is it more engagement with the plans, is it more engagement with consumer, is it more engagement with physicians to push this just probably all of the above, but any one that is particularly exciting to you is it executive team as you look forward? Thanks.

[Donato Tramuto:]

It’s a great question and you certainly have identified. I guess the best answer I can give to you is that those who know us, love us not enough people know us. And so we have a great opportunity in several venues, number one is, as we get into the data we are learning for example that part of the reasons why some of the members don’t go to the fitness centers that they don’t have transportation. So we may have an opportunity know to align with Uber and Lift. Another opportunity that we have is that many of the members that we have in that 13.4 million bucket; they actually have to go to the center and register. And so we see an opportunity to make it very easy for them to register. And last but not least you just alluded to one of the areas is that getting physicians and getting pharmacists and using digital approaches to have greater participation is another venue that we are looking at. But that said, my favorite line you’ve heard me say it before, you will be better [ph] once said you don’t want to make the wrong mistake. We are digging into the data and very interesting some of these facts and opportunities that I’ve just shared with you, those elements and golden nuggets are coming out of the data. So I’d like to kind of refrain from what the actual plan is to give us more time to put this together, but you have touched upon some of those areas that we think are going to be very important to growing that participation. By the way, if I may just also add is having been out there, our clients they are asking for more participation. So we could not have better aligned this focus than to be hearing from our clients who are saying we want more participation, we believe in this program.

[Ryan Daniels:]

Great, I appreciate all the color. Thank you.

[Operator:]

And we’ll take our next question from Dave Styblo of Jefferies.

[Dave Styblo:]

Hi there, good afternoon. Thanks for the question. Donato I think you had mentioned earlier that you guys are expecting organic growth next year to be at least in the upper single-digit range which seems little bit more affirmative of the view. Can you tell me little bit more about what might have made you confidence incrementally more positive there is it something on the retention in members? Is it something that you’re starting to see just in the early view of perhaps some of your customers are new net adds? What is that there that just picked up that confidence on the margin?

[Donato Tramuto:]

Well, first of all we have experienced from the past that we rely on. The other is that over the next few months it will be important as our clients begin to kind of identify their own membership and as we begin to fill that out that’s what’s given us confidence that we will in fact be in that upper single-digit. But keep in mind that we have had renewals, we feel very confident as we look to 2017 this is a very great time period right now to be able to asses where we think we’re going to land next year and that’s why the executive team feels very confident that the numbers that we have shared with you both at the Investor Day and today that upper single-digit is one that we feel very, very good about.

[Dave Styblo:]

Okay. And I am right -- I don’t want to slice hairs, but I think analysis at least upper single-digit I think you guys have broadly used single-digit, so just trying to pick up the nuance there if there was something that had changed in the last couple of years that made you even more convicted of that?

[Chip Wochomurka:]

Actually David -- this is Chip. We actually did use that terminology at least previously. And I think more than anything it's important to understand that we still don't have hard data from our clients yet what their enrollment numbers will look like. We do have a good construct, but we've been thoughtful too about keeping ourselves focused on what the historical engagement rates have been. And not overstepping yet what might be possible with increasing those engagement rates, but we did use the words at least previously.

[Dave Styblo:]

Okay. Helpful, thanks. And then one of the questions I get from investors from time-to-time is just about as you go through the negotiation process for contract renewals. And I think you guys have expressed it at Investor Day from time-to-time you will some pricing pressure. I'm curious on the backend how much ability you have to push that on through to the gens that are in your network. Is it something where costs are highly variable and are easily punchable to pass along to them or is the cost structure is such that it's pretty hard to adjust those?

[Alfred Lumsdaine:]

Hey Dave this is Alfred, I'll speak from a historical perspective. I mean I think the answer is somewhere in the middle, meaning I don't want to say there is ever an easy negotiation. Our -- the fitness is clearly is big asset of the company. At the same time obviously there is a high fixed cost structure and we are providing incremental revenue at times of the day that are as you know they’re slowest time. And so there is just given the dynamics if we are feeling pressure, we certainly do have I'll say it leverage from a partnership perspective to achieve to be able to I'll say pass that on.

[Donato Tramuto:]

And maybe I may just add is this is more of the engagement strategy takes immediate benefit for the participating locations. As we get more members to engage they -- obviously during those hours when they are not busy, they obviously get more payment to them.

[Dave Styblo:]

Got it, okay. And then just my last one would be on the increasing engagement and participation with the members, obviously you guys have talked about opportunities to do that. I think you guys hired some of the executives in charge of that. How should we think about sort of the timing of getting updates on that? And when more of those efforts might start to manifest itself perhaps in results. Is that something that it's I suspect it might be too early for this year to really see anything, but is that something where we begin to see that starting to happen perhaps in the middle of the next year to end of next year or what's your vision for that sort of rolling out?

[Donato Tramuto:]

Another great question Dave and having had experiences you may or may not know my previous company that I launched was a company that had high engagement activity with physicians and consumers. We anticipate and I think the good news is that we have had engagement over the last few years with the programs that we have been implementing. Obviously they're not satisfying to this new leadership team, but we do believe that what we're doing today, what we will launch in the first and second quarter will begin to impact more in 2018. And so what we baked into 2017 is using if you will the programs that we have been over the last six to eight months. So it's going to take some time you want to pilot. Fortunately we've been out there speaking to our clients who are very anxious to pilot with us. And we'll begin then to define which programs get fully launched in 2018 based on the results and outcomes that we have in mid to late ‘17.

[Dave Styblo:]

Very good, thanks.

[Donato Tramuto:]

Thank you.

[Operator:]

And we'll take our next question from Josh Ruskin of Barclays. Please go ahead.

[Josh Ruskin:]

Hi thanks. I was wondering if you could just give us a little bit more color on to that build of the at least upper single-digit growth for next year? I mean just based on the size obviously SilverSneakers is going to be in and around that, but maybe the non SilverSneakers' businesses the two segments there. Are they directionally growing faster still is that still the thought into 2017?

[Donato Tramuto:]

Well, I think certainly SilverSneakers in the upper single-digits and I think the Physical Medicine. And I think Prime has an opportunity to we're looking at maybe 20% there. But I think the two networks out of the three we stay firm in terms of the supper single-digits.

[Josh Ruskin:]

Okay, that's helpful. And then just in terms of the NOL you mentioned $188 million I just want to make sure I got that right that’s the -- that not the valuation that’s not your valuation of NOL that’s the amount of taxable income that could be shielded, correct?

[Glenn Hargreaves:]

Josh, this is Glenn and you are correct, that’s the gross attribute.

[Josh Ruskin:]

Okay, got you. And then last question I guess just on the management changes hate to sort of overshadow the sold quarter with CFO change, but any other management changes anything else we should be aware of short-term or anything on the radar in terms of things that will come up in the next couple of months?

[Donato Tramuto:]

No, not at all, in fact I am very pleased that we have been able to bring in new people, people that I have worked in the past. One of you just alluded to the fact that we have experienced digital and engagement folks. So now and I think that pretty much now the team is sold and in place and as I shared with you I’m very happy to have Glenn in his role now.

[Josh Ruskin:]

Okay, it’s perfect. And I may have one or two for Chip offline just model questions I’ll follow-up, thanks.

[Donato Tramuto:]

Thanks, Josh.

[Chip Wochomurka:]

Thanks, Josh.

[Operator:]

And we’ll take our next question from Mike Ott of Oppenheimer. Please go ahead.

[Mike Ott:]

Good afternoon, thanks for taking my question.

[Donato Tramuto:]

Sure.

[Mike Ott:]

I’m wondering if you guys have been impacted at all by the recent CMS decision to stop accepting applications for auto enrolment into Medicare Advantage plans?

[Chip Wochomurka:]

I don’t think that would have any direct impact on us that I can think of Mike, other than to the extent that would impact just overall MA enrolment in and of itself, which I don’t think or we don’t think is going to happen. We think people who make those choices are going to be proactive in that regard. So, I don’t -- we don’t foresee any. And none of our clients have indicated as it being a problem.

[Mike Ott:]

Okay. That’s helpful, thanks. And then also wondering if there has been any update or progress yet on the renewal of United Health for 2017 or if it’s still too early?

[Donato Tramuto:]

I think it’s just too early, however we have been in negotiations and what I can say is that it looks very encouraging.

[Mike Ott:]

Great, thanks very much.

[Donato Tramuto:]

Sure.

[Operator:]

And we’ll take our next question from A. J. Rice with UBS. Please go ahead.

[A. J. Rice:]

Thanks, hello everybody. Just maybe first to just tie that last question up a little bit, I assume that a big contract like that wouldn’t be renewed right at the end of the year. In your previous experience when big contracts come up front when do you typically get a sense of where I mean if they were going to do anything different I would assume they have to let you know pretty early. When do you get a sense that okay this is done typically on the big contracts?

[Donato Tramuto:]

We’ll now in the spring A.J., that’s why we enter now into those dialogs and it’s important for them to know as well as they have to file their membership program.

[A. J. Rice:]

Exactly. On the MA -- comments about MA growth or your growth next year, this year you had roughly 10% growth in the core business with I think the MA enrolment numbers are going to come in sort of mid-single-digit. I’m wondering did you -- thinking about next year upper single-digits, does that predicated upon any strengthening in the underlying MA market or you just sort assuming it’s similar to what we saw this year?

[Chip Wochomurka:]

I think say -- A.J. this is Chip, I would say it predicates it pretty much on the idea that you’ve got a 5% to 6%, it’s hard to tell exactly, but a 5% to 6% in fact enrolment growth rate, but we also do look at the specificity of what plans are going to offer, what benefits like SilverSneakers in particular counties, regions, states and so on and all those things factor into our outlook.

[A. J. Rice:]

Okay. And then just, I’m just trying to understand an MA market it’s a little bit in transition this for ‘17 and potentially for ‘18 given that some of the changes -- some of the major players or experience with star ratings and everything else. When you drill down in the history, do you remember it tend to be more sticky or less sticky than the average MA enrollee with their current plan? And I don’t know if you have ever looked at this, do you have any experience when people transition to a different plan? Do you -- is there any lag for you or is it pretty much seamless they switchover immediately January 1 and they pick right backup with the programs they were historically taking under a different payer.

[Donato Tramuto:]

Yes and you mentioned the stickiness I mean one of the studies that we have conducted is that I think this is one of the things I've learned as I've gotten out there to meet with clients is that they’re understanding the real value and the stickiness of the program SilverSneakers. And we've had data that shows that when a plan has dropped in respective state that that member has actually looked for a plan that has offer the SilverSneakers program. So we have value there. With respect to the star rating I just want to comment on that because I know that's been published a lot. Data showing that even though the star ratings maybe correlated with factors that seniors used to select their plans. What we're finding is that the rating does not have as much influence as and at least in focus we've said Medicare has conducted it doesn’t have as much of an impact in terms of the plan that they're choosing. So we feel very strongly that while there has been a lot of noise with certainly a few of our clients we're not as concerned with that as you might suspect.

[A. J. Rice:]

Okay. And then I just have a technical question. On this actualization of or the convert, exercise of the convert and taking the 890,000 or so shares I know that’s not a lot of shares. But is there any restrictions on CareFirst and their ability to sell that? Is there any assumption that we should assume that they will liquidate that or do they hold on to that, any thoughts you have on this?

[Donato Tramuto:]

I think it would be presumptuous of us to make an assumption on there. In fact clearly they have an investment portfolio and what they do with it is has to be consistent with their own decisions regarding their investments.

[A. J. Rice:]

But there are no restrictions.

[Donato Tramuto:]

There are no restrictions.

[A. J. Rice:]

There are no restrictions. Okay, alright that's great, thanks a lot.

[Donato Tramuto:]

Thank you, A.J.

[Operator:]

[Operator Instructions] It appears there are no further questions at this time, Mr. Tramuto. I'd like to turn the conference over to you.

[Donato Tramuto:]

Thank you very much. And thank you all again for attending our call today. And please don't hesitate to contact Chip, Glenn or me if you have any questions. And again, thank you very much for joining us. Make it a great day.

[Operator:]

That does conclude today's presentation. Thank you for your participation. You may now disconnect.