Tivity Health, Inc.
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good afternoon, and welcome to Healthways Second Quarter 2015 Conference Call. Today's call is being recorded and will be available for replay beginning today and through August 1st by dialing 719-457-0820. The replay pass code is 2769710. The replay may also be accessed through the next 12 months on the Company’s Web site. To the extent any non-GAAP financial measures discussed in today’s call, you will also be able to 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 the Company’s Web site. 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 2015 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. 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 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. At this time, for opening remarks, I’d like to turn the conference over to Company’s Interim Chief Executive Officer, Mr. Alfred Lumsdaine. Please go ahead, sir.

[Alfred Lumsdaine:]

Thank you and good afternoon everyone. Thanks for being with us today for Healthways second quarter 2015 conference call. With me today is Chip Wochomurka, our Head of Investor Relations. Chip and I will both make some remarks about our results for the second quarter as well as our outlook and guidance for 2015. Following those remarks we will open up the call for your questions, Chip?

[Chip Wochomurka:]

Thanks, Alfred and good afternoon everyone. Second quarter revenues of $198 million represent a comparable quarter increase of approximately 10%, this revenue growth produce comparable quarter adjusted EBITDA growth of more than 27%, which excludes just under $4.5 million associated with the Company's CEO transition in May. Our adjusted net income per diluted share of $0.11 for the quarter represents a $0.10 per share improvement from the $0.1 we reported for the second quarter of 2014. I would note that our results for the quarter included recognizing approximately $8 million of performance-based fees that we had previously anticipated would be recognized in the second half of 2015. The GAAP net earnings for the second quarter of $0.01 per diluted share includes $0.03 per diluted share of non-cash interest expense and $0.07 per diluted share of expenses related to the Company's CEO transition. Adjusted cash flow from operations for the quarter totaled just over $28 million and now totals approximately $43 million for the first half of 2015. Capital expenditures for the quarter were $8.7 million and now totaled just over $17 million for the first half. The leverage ratio under our credit agreement at the end of the second quarter dropped to 3.0 times from 3.2 times at the end of the first quarter. Now let's turn to our financial guidance for the remainder of 2015. In our earnings release today we provided a full update on the key financial guidance metrics for 2015. As we had outlined in our guidance revision on June 18 we continue to expect 2015 revenues will be in a range of $770 million to $785 million, an increase of approximately 4% to 6% over 2014 revenues. As you know the revision in revenue guidance was driven by three factors. The factor relates to a significant contract with the commercial health plan customer that will have lower than expected growth in net engaged lives during 2015 primarily because members have been graduating from one of the clinical programs at a faster rate than expected. The second factor relates to slower than expected implementation and sales cycles for the owners’ reversal program. In scaling this program we've experienced that health system customers require a longer timeframes for facility upgrades, program deployment and initial cohort enrollments than we originally anticipated. All contract signed prior to 2015 have been implemented and are graduating cohorts and we've continued to sign new contracts albeit at a slower pace than our original guidance anticipated. The third factor is a somewhat slower than expected pace of near-term business development for certain blue zone project opportunities originally anticipated for 2015 and Alfred will discuss these three factors in a bit more detail in just a moment. From an earnings perspective as we mentioned in our June 18th release our revised guidance for 2015 EBITDA is a range of 8% to 8.5%. As a consequence we've reduced our guidance for adjusted net income per share for 2015 from a previous range of $0.35 to $0.47 to a new range of $0.07 to $0.15. The guidance for adjusted net income per share excludes 12% per share for non-cash interest expense and $0.08 per share for expense associated with the CEO transition. These changes result in a new guidance range on a GAAP basis of a net loss per share for 2015 of $0.13 per share to $0.05 per share. We expect adjusted cash flow from operations for 2015 will be in a range of $65 million to $75 million and capital expenditures will continue to be in a range of $37 million to $42 million. We expect the free cash flow will be applied primarily toward debt repayments and at the debt to the EBITDA ratio as calculated under our credit agreement will remain below 3.4 times for the remainder of the year. Now let me turn the call over to Alfred for some additional thoughts and perspective.

[Alfred Lumsdaine:]

Thanks Chip. First I'd like to take a minute to add some color around the three discreet items that led to our guidance revision five weeks ago and around the more detailed guidance provided today. As Chip just indicated the first item relates to a significant commercial health plan customer for whom Healthways provides a number of different programs and services. From a revenue perspective the single largest currencies of business we have with this customer is a care coordination program focused on those members identified as being at high risk for a future costly event. This program manages the members through the high risk period and subsequently graduates the member from the program to less intensive support at the point of clinical stability. The clinical success of the program has been coupled by the health plan with an iterative evaluation of the graduation criteria with a focus on creating ongoing improvement in both clinical and financial outcomes. This iterative process to improve the program through evolving the graduation criteria has resulted in a decline in the total number of members enrolled over the past few months. It's important to note that Healthways participates in the financial success of this program. We continue to work collaboratively with this customer and we mutually expect membership in the program to begin growing again as early as Q3 of this year. So we view this development as a temporary impact on the program. The second item relates to the Ornish reversal program. We remain positive about the outlook for the growth of the Ornish program and our work with MedAssets has expanded our sales pipeline significantly. While both the selling cycle and the implementation cycle remain longer than we originally anticipated we're actively working on ways to accelerate throughput and shorten implementation timeframes. We've not experienced any reduction in market interest for the Ornish program. So we remain encouraged by the macro trend of health systems and hospitals increasingly looking for these types of lifestyle risk and management program. The final contributing item to our guidance revision is the slower than expected pace of business development activity for certain discreet Blue Zones projects, we remain positive about the outlook for this program and we've experienced annual revenue growth in Blue Zones projects every year since 2012 in fact we expect that 2015 revenue for this program will increase approximately 40% over 2014. Now I would like to turn to providing some color on our financial guidance for the balance of 2015. As indicated in our release today our second quarter results were positively impacted by approximately $8 million of performance-based revenue that we would expected to recognize in the second half of the year. As a result using the midpoint of our revised revenue guidance range, revenue for the second half of 2015 would increase only slightly compared to the first half of the year. From an earnings perspective we expect a slightly lower adjusted EBITDA margin in the second half of the year compared to the first half. This result us primarily due to the impact of the margin reduction from the commercial health plan customer we've discussed as well as the timing of certain costs such as the customary annual enrollment marketing materials supporting our SilverSneakers program and implementation costs for new contracts. As Chip noted we expect our debt-to-EBITDA ration as calculated under our credit agreement to increase in the back half of the year however we fully expect to remain in compliance with all covenants under our credit agreements. Moving onto business development activity, market demand for population health solutions remains high and the pipelines in each of our customer markets remain strong. We had a solid quarter in terms of signing new customers as well as expanding and extending existing contracts. During the second quarter we signed a total of 25 contracts including four new customer contracts, seven expanded contacts and 14 extended contracts. In addition we were quite pleased this week to announce the early renewal of the contract with our signal largest customer Humana. This renewal extends our relationship through 2020. We expect our ongoing business development momentum to produced additional new expanded and extended contracts during the remainder of 2015. The competitive environment for population health management solutions is significant and in particular we faced this competition from a wide range of offerings in both the direct-to-employer and health systems market. Nevertheless, we remain confident that our solution and our proven outcomes put us in what we believe is a strong position to capture a significant share of those opportunities. I'd just like to conclude my prepared remarks by making a brief comment about the Board’s search for a permanent CEO. The CEO search is being led by the nominating and corporate governance committee of the Board that committee is continuing to work with an appropriate sense of urgency and they're making progress. This is of course Board work and accordingly Chip and I will not have additional commentary with regards to the search process or its progress. With that operator, we'd like to open the call for questions.

[Operator:]

Thank you. [Operator Instructions] And we'll take our first question today from Dave Styblo with Jefferies.

[Dave Styblo:]

Hi Alfred, let me start with the questions on the health plan customer here it sounds like initially when you got another release it was a bit little more related to graduation rates and I think I heard you say that the remember was also lower than expected, but just to want to make I fully understand the mechanics of what's going on and then more importantly it is my understanding that you were sitting down with that customer to talk about the issues and sort of why it surprised you suddenly because you've been having a performance record with these guys for last couple of years, so what’s changed there and then how -- what gives you confidence that the enrollment is going to come back up or that the graduation rate might go back to a more normalized level?

[Alfred Lumsdaine:]

Yes happy to I don't think we were clear on the first part Dave, the membership is not lower, when we talk about the membership the number of participants in through the program is lower because the graduation rate was higher than we anticipated, so the net enrollment who we are providing services to was lower than we expected as a result of that elevated level of graduation. I hope that's clear.

[Dave Styblo:]

Okay, yes, that makes sense.

[Alfred Lumsdaine:]

And then and with regard to part, the second part of your question, yes, we certainly we have been in close contact with this customer. We've been at the table with all levels of management including executing management. And there is a firm understanding of the impact that this has had and a commitment to stay in tighter collaboration so that we don't get surprised in this way going forward and so I think just the increased focus in terms of the saying and think with one another and understanding the application of the both graduation and enrollment criteria and we mutually have a plan. So I think our confidence in the solidity of our projections for this program for the rest of the year is very high.

[Dave Styblo:]

Okay so those should go back to more normalized levels of what you saw and are you assuming that in guidance or is that not in guidance?

[Alfred Lumsdaine:]

I don’t think we have been specific we are assuming inside of the guidance that we do get back to growing the membership this year and I believe our expectations are we would end the year with a greater number of participants than we started the year.

[Dave Styblo:]

Okay. And then if I think about these three issues that came up it sounds like most of them are more so of a delay or things can get back to a normalized level. How much of as opposed to some of the revenue just completely vanishing how much of the drag or incremental drag is this going to be on next year's revenue?

[Alfred Lumsdaine:]

We haven’t really talked about next year yet I wouldn’t think that I wouldn't think these three items would be a drag on next year because growth is growth so wherever you start from if we are able to achieve the growth in the commercial health plan program that we talked about it should yield the same sort of growth trajectory that we had anticipated coming into 2015 and likewise with the Ornish program and the Blue Zones project if we are able to achieve the types of new business development and implementation time so I think we've said with the Ornish program it does take longer to implement than we historically or that we thought as we started this year so there could be a small impact but it would be premature really to unpack that I think the short answer to the question there shouldn’t be that much of an impact as we think about ’16, but more to come.

[Chip Wochomurka:]

And Dave I would just say it just starts with a lower starting point because it will end up this year I think that's the way to think of it for now.

[Dave Styblo:]

Okay. And then lastly just on the margins the midpoint of the guidance that are created does, is 8.25 I think that's really more like 8.9 when you exclude the CEO transition expenses. Are there any other major pluses or minuses to that as I think about a base jumping off point and then as we move into 2016 obviously the margin that was associated with the customer loss or with the health plan customer was very high I think north of 50% how do we think about incremental margin moving forward for 2016 does it do you expect that to sort of be in a 20% to 30% range as rule of thumb implies or are there reasons why the incremental margins could be higher and if so. Can we kind of get back to what the margins were back in ’14 but maybe back at a 10.6% level?

[Alfred Lumsdaine:]

Yes. I think we certainly think again it's a little too early to be specific about margin we clearly are committed to growing it we don’t have the drag if it is kind of impact we had in 2015 relative to that unusually high margin business rolling off so as we get growth we would expect any growth will bring with it margin expansion and we don’t have any material contracts defined as those greater than 2% renewing this year so we think there should be a growth trajectory and clearly we are also going to focus on the cost profile of the company as well. So, I think all those things combined I don’t think it's certainly not stretched to construct a case that you can get back to 2014 margin.

[Operator:]

We will take our next question from Sean Wieland with Piper Jaffray.

[Sean Wieland:]

So, just to close out that prior line of question again there is no change in your outlook on the profitability to business for the remainder of the year versus five weeks ago is that correct?

[Alfred Lumsdaine:]

That's correct.

[Sean Wieland:]

Okay. The Blue Zone revenue you said will increase 40% did you say in is that in 2016 and could you give us little bit more detail on that?

[Alfred Lumsdaine:]

No that's a comparison of this year ’15 to ’14 though we did have to reduce our guidance and that was the smallest piece of the reduction Sean it would have grown 50% or 60% in ’15 over ’14 it's only now going to grow 40% as a result of that reduction.

[Sean Wieland:]

I see. Okay and what -- can you size what -- how much revenue that is for you?

[Alfred Lumsdaine:]

No we haven’t sized that for the market I mean it's still it's a small and growing piece of the business and the aggregate to that is still well under 10% of our revenues.

[Sean Wieland:]

Okay, thanks. And then one more I will slide in here on the Humana renewal. Can you comment on pricing on that if you are able to sustain your pricing on that and then any commentary on why that deal was renewed earlier?

[Chip Wochomurka:]

Well I'll comment on the economics I think it was fundamentally that the similar economics to what we've been having through that relationship and we continue to expect it to grow so I would say all-in-all it’s fundamentally the same level of economics and I'll let Alfred comment on the second part of that.

[Alfred Lumsdaine:]

Yes. I think in terms of the earlier you know we have track-record with Humana I think we've said historically that we focus on renewables the first day after the new contract to sign so it shouldn’t necessarily come out to surprise I think clearly it's a very tight partnership that we have with Humana I believe they view it as the differentiator and that's strategic importance to them so I'd like to thank the early renewal with simply a function of good execution and good collaboration with an important customer.

[Sean Wieland:]

And are there any changes in control provisions in the renewal?

[Alfred Lumsdaine:]

Yes. There are but in terms of the I think you're probably specifically referring to are there provisions as it relates their impending merger and we've waved any mechanism we would have as it relates to that particular transaction if that were to get through so. But meaning the contract can be assigned. Meaning, it would survive that merger.

[Chip Wochomurka:]

It would reinforce through the merger.

[Operator:]

Our next question comes from Ryan Daniels with William Blair.

[Nick Hiller:]

Hi this is Nick Hiller on for Ryan Daniels thanks for taking my questions. I guess first on the performance fees is your -- so for the full year are your expectations still pretty consistent I think it was 5% or 6% of revenue for performance fees?

[Alfred Lumsdaine:]

That’s right I'd say it may be closer to 6%. But yes our expectations are unchanged from how we entered the year. This was simply a question of being able to have earlier than expected recognition.

[Nick Hiller:]

Okay thanks. And then could you just give us an update on the number of facilities that you are currently operational with Ornish at?

[Alfred Lumsdaine:]

Yes I would -- we've not Nick given specific numbers on that. But it continues to grow each quarter and we've signed new contracts as well as implementing new sites. We just haven’t gotten into specific numbers and I don’t think that’s the way we're going to track the program and report on it at least not in the near-term I don’t see it that way. But it is more than it was at this time at the end of last quarter.

[Operator:]

We'll take our next question from Tom Carroll with Stifel.

[Tom Carroll:]

A question for you on the performance based revenues as well. Why were you able to recognize it in the 2Q this year? I mean those are typically towards the end of the year when we hear more about them. And then secondly I wonder if you would just comment a bit further on the challenges you're having with the Dean Ornish program. It just seems like you had some traction with that business this year I think it was in late April you announced a handful of new contracts there. So maybe a bit more detail in terms of why that is slower than expected? Thanks.

[Alfred Lumsdaine:]

Sure well I think Tom on the first part of your question performance based revenues as you know are notoriously difficult to predict which is why we don’t timing. Which is why we don’t provide quarterly guidance we remain very confident in our ability to recognize them. But again timing becomes the biggest challenge in that. So this is a -- I'll call it a positive surprise but in the scheme of the year which is how we really guide people to look at the company because of the noise of the timing of revenue recognition introduces just again it creates noise but really want people focused on the year. But to an extent I guess we've create a little more certainty by recognizing early and again I couldn’t point to anything other than the ability to that we've met whatever requirements are needed to recognize the revenue in this case. And it was multiple contracts and it just goes to the challenge of predicting timing. The second part of your question the Ornish I mean I would still tell you we feel very bullish in terms of the traction. Clearly as you talked about the guidance revision it's not met our expectations in terms of how we timed the cohorts coming on and implementing and increasing and the timing of signing and standing up. At the same time the pipeline has expanded smartly we don’t see deals that go into the pipeline dropping out of the pipeline everything just takes longer and I think it's learning for us around working with health systems. They are slower in the case of implementing these programs than what we would have thought based on our early experience through pilot programs. So I sure wouldn’t want to interpret it as lack of enthusiasm for the program because we would expect to continue to grow it.

[Chip Wochomurka:]

I want just to add I think that Tom one thing we're seeing for sure particularly in the implementation is that the majority of these health systems are determining that it's in everybody's best interest to take a longer period of time than anybody anticipated and do facilities upgrades put the proper classroom settings in place. So that they can be prepared for the volumes they ultimately expect to take through the program and so then they go through the ponderous approval process construction or build out process et cetera. So it takes long so we're at a little bit more granular level of detail but we're seeing this on a repetitive basis. And so and then they are waiting to market the program and really get the physician community engaged until they are really fully ready. So they're taking more step-by-step approach than a parallel process approach and it's just lengthening the process and as a result some of the initial cohorts are starting with smaller sizes than we anticipated and so on. But we're starting to see these as the longer there in place the more they do develop and come to the full fruition and it's just a longer cycle.

[Alfred Lumsdaine:]

And to Chips point I think the more experience we gain the better we will be in terms of understanding all the dynamics on the forecast and the ability to forecast this business going forward, so we feel very comfortable with how we forecast it going forward.

[Tom Carroll:]

So just a follow-up on the performance-based revenues the acceleration I guess this year in the first half I mean does that should we read in anything into that in terms of changing in seasonality or does it say nothing about next year or [Multiple Speakers]?

[Alfred Lumsdaine:]

I would say just nothing about next year. It just is simple timing.

[Tom Carroll:]

Okay got it. And then just also as a follow-up on the prior question about the Humana deal, can I interpret your response to be maybe priceless down a little bit but you expect volumes to be up and results same economics on Healthways?

[Alfred Lumsdaine:]

Yes, I mean, I wouldn't want to get into exact specifics but we feel very comfortable with economics, I mean, every negotiation is negotiation right and so but at the same time we are very comfortable with the partnership here and with the economics that we've been afforded.

[Operator:]

We'll take our next question from Josh Raskin with Barclays.

[Josh Raskin:]

One question just on the performance fees, 8 million in the second quarter, was that the total amount or was that the early amount and how does that compare to last year second quarter?

[Chip Wochomurka:]

That was the early amount not the total amount.

[Alfred Lumsdaine:]

Yes, I would tell you compared to last year it was up probably 9 million to 10 million.

[Chip Wochomurka:]

Of which the eight would be a decent average.

[Alfred Lumsdaine:]

Yes, it would be, would be.

[Josh Raskin:]

All right so it would have been up 1 million to 2 million but it is actually up 9 or 10 just because you got the early amount?

[Chip Wochomurka:]

Yes.

[Josh Raskin:]

Okay and I am sorry did you say what the actual total is for 2Q?

[Alfred Lumsdaine:]

We didn’t but I would tell you it's probably 15 million to 16 million.

[Josh Raskin:]

Okay, perfect. And then just on SilverSneakers, I guess one would probably be helpful just to start getting little a more visibility, I know you've talked about I think you said 46% of the old guidance was MA plans, I am assuming that is all SilverSneakers so that something in the ballpark of 375 million of revenue, does it doesn’t sound like there has been change in the latest revenue update? So a couple of questions on that, one is how much of that is Humana? I guess the second is are these margins significantly higher than sort of this 10% phase or sort of more in line and then I think you've talked about a 5% growth rate on SilverSneakers expected, would you guess that increases or decreases as we sort of think about the future?

[Alfred Lumsdaine:]

Yes so lot of questions there Josh and I think Chip will keep me on the right track if I don’t answer them all. I think in terms of it would be just a tad cautious not 100% of our MA business is SilverSneakers, it is a significant majority there so I'd be just a little cautious there that we do have other products that we have to our MA lines of business so as you think about that 46% which will actually be a little bit higher just given the revenue reduction that we have this year and the fact that that business has very much prone to target that you can't imagine that it will be a little bit higher than 46% probably something closer to what we did last year 48% to 49% of business. So I would say those are the first two parts of the business and Chip will help me with the.

[Chip Wochomurka:]

Well yes, yes the rate of growth we did say we expected entering this year that the rate of growth would be about 5%, but we were at some complicating factors with restructuring a couple of contracts for exclusivity and so on that will all go on now, so I would expect we would expect without giving any guidance for ’16, but in a general sense our expectation is that, that growth rate in that business returns to the upper single-digit range which is more likely where the Medicare advantage market as a whole will go.

[Alfred Lumsdaine:]

And most of the growth left for us, the most of the growth will be derived from overall enrollment growth into MA. We can do some things, it's not a lot of Greenfield blast but we can still -- there always have sub-products, there is things we can do to draw participation. So there are opportunities for us to go a little bit North but there is always pressure on price on renewal. So I think we look at if we can grow to mid upper single-digit sustainably that that's more than acceptable.

[Josh Raskin:]

And how much of the 48% to 49% of the total revenue this year, how much of that is Humana?

[Alfred Lumsdaine:]

I think I won't speak to 2015 because that won't be public information. I believe if we look at 2014 Humana was 11% of our revenues off of 742, so $80 million of revenue in 2014.

[Josh Raskin:]

Okay and then is at SilverSneakers customer?

[Alfred Lumsdaine:]

Yes, they are, they are a customer we don't have what I would say the full penetration through their SilverSneakers customer.

[Josh Raskin:]

Okay got you and then just shifting topics to the margins just as I am doing the math for the second half, I am coming up with and just sort of let's move the 8 million bucks from 2Q into the second half just in terms of where the normal seasonality would be, you get a margin EBITDA margin just under 10%, so is that a good run rate for sort of going forward assuming whatever just flat revenues in ’16 that's where we were to start with that 10ish percent margin be the right number or are there other complicating factors in the second half that are either depressing or increasing those.

[Alfred Lumsdaine:]

Yes. I don’t think of any complicating factors I think again the as we look at the full year we've said it which again is how I would always council to look at this business and where we're going to do 8% to 8.5% and the things will be to drive margin improvement next year will be things obviously as we've been very transparent about we expect new business to come on with and gain increasing leverage and I think you always have to be mindful of your cost structure as well so I think focused on both bringing on profitable new business with that kind of contribution margin that's you cited 20% to 30% in addition to careful cost management again our expectation would be for enhanced margins in 2016 clearly will more to come as we close out the year.

[Josh Raskin:]

And I am sorry I am sneak in one last one just on that cost structure that you spoke about earlier in then again right here. Would you be is it possible that healthcare should able to make some significant structural changes in the cost structure before a permanent deal is named or do you think that's all part of the review and part of the new theme et cetera?

[Alfred Lumsdaine:]

Well. I think they have the management to run the business and they haven’t set any timelines on it in terms of this management team feels empowered and as I think you never you always use these types of opportunities to change with change of significant change to look at the business and we’re doing that and again I think that's just a good blocking at that point.

[Operator:]

We will take our next question from Brooks O’Neil from Dougherty & Company.

[Brooks O’Neil:]

That's Dougherty and Company but guys I'm confused about something that's in the press release and I just was hoping you would help me a little bit with this I think it says in the press release Healthways is affirming financial guidance for the full year and you have a couple of bullet points under that and then you have a would appears to be able to little bit of the table that I think suggests that adjusted net income per share is let's call it meaningfully lower under the current guidance than what you listed as the prior guidance and I'm just trying to understand if I'm missing something and looking at this table?

[Alfred Lumsdaine:]

No. I think Brooks the affirming is of the pieces of guidance that we provided five weeks ago.

[Brooks O’Neil:]

Okay it's a top part.

[Alfred Lumsdaine:]

That would be the revenue that would be the EBITDA margin that we have put out in the release five week ago and as we said in script we are now today providing and in the release more detailed more comprehensive financial guidance which includes now earnings per share guidance that we did not give five weeks ago.

[Chip Wochomurka:]

So, I think Brooks…

[Brooks O’Neil:]

With that I forget I can’t even go back and find but I will tonight obviously was the original for 2015 at 35 to 47 is that what you are saying.

[Chip Wochomurka:]

Yes. That is exactly correct that was our original guidance entering the year that we provided in February.

[Brooks O’Neil:]

Okay.

[Alfred Lumsdaine:]

Okay. So, I think I'm just going out of this being a numbers person that you do the math relative to the change in the revenue range and the EBITDA margin I think you will find that the new guidance as it relates to adjusted net income and GAAP is extremely consistent with the change that we made five weeks ago to EBITDA range and revenue.

[Brooks O’Neil:]

That's possible.

[Alfred Lumsdaine:]

Yes.

[Brooks O’Neil:]

Okay, that's helpful. And then just checking my math again not been a terribly great numbers person but if we took out that 8 million of let's call it accelerated performance based fees you probably lost a few pennies per share on an adjusted EPS base is that the right way to think about it?

[Alfred Lumsdaine:]

Yes. I think that's totally fair I think when we did our call at the end of Q1 we gave some indication that we thought we would be right around breakeven obviously we were impacted a little bit and just a little bit in the quarter by the items that resulted in the guidance change so I think our results were very consistent with this prior comments both at the end of the Q1 and five week ago.

[Brooks O’Neil:]

Sure. That's good. And then I think one thing that either Chip or you Alfred said to me was you were kind of trying to wait a little bit to see if there was any material impact in terms of the pipeline the current customer relationships et cetera related to the loss for the resignation of Ben as CEO and I'm just curious now we hear a few months into the process could you just comment on whether you have seen any material changes in sort of the pipeline or the current customer base that seem to be tied to since leaving the company?

[Alfred Lumsdaine:]

Sure. Good question. I mean we will never know what we don’t know right I mean in terms of different reasons again as I cited in my prepared remarks we do deal in a highly competitive environment and competitors are going to use everything they can against you whether fair or not the business environment is not always fair. So at the same time we've continue to make good progress and good traction so I couldn’t credibly sit here and tell you that the impact is zero because you know Ben was heavily involved in business development opportunities. But at the same time I continue to believe what we sell are the services and outcomes that provide population health services. And that’s not related to any CEO so we feel very bullish and as I said in my prepared remarks we've seen we have a robust pipeline across all of our markets and we're continuing to execute. So I think as our job as a management team and as a company to be sure we execute everyday regardless of who the CEO is. So it's a long way to say we certainly have done everything we can to minimize that and we'll never know whether there was an impact or not.

[Operator:]

We'll take our next question from Mohan Naidu with Oppenheimer. Mr. Naidu your line is open please check the mute function on your phone.

[Mohan Naidu:]

I just had a question on the provider based solutions you have. I'm sorry if you guys talked about this before I joined late. In your existing contracts that you have are you having patients go through at this point and if so what kind of revenue impact are you seeing there and also what kind of discussions are you having for prospects our own provider based solutions?

[Alfred Lumsdaine:]

I mean I still think that’s an emerging part of our business it clearly is an area that there is a lot of market activity. But candidly not a lot of revenue yet so it is something that we are commend. Again there is a million solutions out there that we're seeing. So we're being we are obviously in a number of conversations we deal with we have as you know consulting group dedicated to the provider market that has continued to increase their footprint. But it's still early days and that probably gets a little old sounding like a broken record because it was early days two years ago, but we're still not seeing a lot of uptick in terms of the part of the I will say the product goal that the end of the rainbow providers taking attributed risk and then partnering for the type of population and solutions we provide.

[Mohan Naidu:]

Okay and are you still comfortable with your stated goals on the revenues from this segment?

[Alfred Lumsdaine:]

I think if you look at again where we took the guidance down it's not as we end this year it will look about like last year probably in the 6%-7% range because of the impact of where we took our range of revenue down when we did the revision five weeks ago. As you know the Ornish solution for example is primarily targeted essentially entirely targeted at the provider market so the impact was pretty big. And the numbers we're still doing a lot of small numbers with that segment of our business.

[Chip Wochomurka:]

But again it is growing year-over-year just not as fast this year as we thought.

[Operator:]

At this time we have no further questions. I would like to turn the call back over to Alfred Lumsdaine for any additional or closing remarks.

[Alfred Lumsdaine:]

I’d just like to say thank you for your time and interest and Chip and I are available to speak this evening or tomorrow. Have a good night.

[Operator:]

That concludes today's presentation. Thank you for your participation.