Tivity Health, Inc.
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Please stand by. We are ready to begin.

[Chip Wochomurka:]

Good afternoon and welcome to Healthways' third quarter 2014 conference call. Today's call is being recorded and will be available for replay beginning today and for one week by dialing [phone]. The replay pass code is 8108100. The 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 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 Healthways' expected quarterly and annual operating and financial performance for 2014 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 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 would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Ben Leedle. Please go ahead, sir.

[Ben Leedle:]

Thank you. Good afternoon, everyone. Thank you for being with us today for our third quarter 2014 conference call. I am here with Healthways' CFO, Alfred Lumsdaine. We will both make some remarks about our results for the third quarter, as well as our outlook and guidance for the rest of 2014. Following those remarks, we will open the call for your questions. So let's begin. Healthways has the solid third quarter results highlighted by achieving the second consecutive quarter of double-digit revenue growth. As Alfred will discuss in more detail, overall our third-quarter results were consistent with the discussion we have had with you throughout 2014 regarding the performance necessary to achieve our revenue, margin and earnings guidance for the year. Earlier today, we affirmed our full year guidance and reiterated the key expectations that support it. For the remainder of 2014, we continue to expect to grow revenues and expand margins to significantly contribute to the growth of our adjusted EPS. Our performance for the third quarter and the first nine months strengthens our confidence in achieving our objectives. We have a clear understanding of the components contributing to our guidance that we must accomplish in the fourth quarter and we are focused on executing the successful completion of the year. Looking beyond the fourth quarter, we continue to be very encouraged by our ongoing growth potential and earlier this month, we renewed the third of the four larger contracts we had up for renewal by the end of 2014. The fourth renewal is in the final stage of contracting and we expect it to be completed before year-end. Further, our business development momentum has been building in response to growing demand for total population health solutions. 2014 has been a pivotal year in the healthcare market's recognition of the value of total population health. We believe this demand is being driven in large part by the continued transition to payment for outcome value. The number and nature of contracts we have already signed this year provides clear evidence of the momentum we have developed in response to our strong competitive and leadership position in the total population health market. In the first nine months of this year, we signed a total of 62 contracts, of which 13 are with new customers. Of the remaining 49, 15 were expansions, 34 extensions with existing customers. In addition, in the three weeks since the end of the quarter, we have added nine contracts, three, with new customers, two more expansions and four more extensions with existing customers. This contracting activity is spread broadly across all of our domestic customer markets, While we are confident of continuing this momentum into 2015 and beyond, we also still have a number of opportunities in which we expect decisions before the end of 2014. Some of these opportunities are outside of our normal seasonal contracting cycle for employers and health plans and primarily relate to health systems, hospitals and physician customers. We are also engaged in active discussions for total population health contract expansions with existing customers, both domestically and internationally as we layer on additional service lines in phased implementations. Both the near-term contribution and long-term potential of these contracts are expected to be significant. We have signed five health system contracts thus far in the second half of 2014, which we believe are just the initial successes from the dozens of prospects with whom we are in various stages of contract discussions. These potential contracts clearly reflect the overall market's recognition of the need to prepare for value-based reimbursement arrangements. So we believe that now and later value proposition of our Ornish program and our Care Transitions Solution and similar services provides flexibility for the buyer to benefit no matter the reimbursement method, mix and rate of change that providers are facing. This not only differentiates Healthways in the market but also it has created a compelling reason for these prospects to act more quickly to move their transition to population management forward. So to summarize my comments, the two key takeaways from our third quarter results are essentially the same as last quarter. Our operating and financial performance has positioned us to achieve our guidance for the full year, which we have affirmed today. In addition, our business development momentum continues at a strong pace and we have every expectation of expanding our book of business across all our customer markets. We expect to achieve our long-term financial objectives over the next three to five years at 10% to 15% compound annual revenue growth, with EBITDA margins expanding in a range of 15% to 18%. So thank you for your time this afternoon, and now I will turn this over to Alfred and let him walk you through our Q3 results and the guidance in more detail.

[Alfred Lumsdaine:]

Thanks, Ben. Good afternoon, everyone. Our third quarter revenue of $186 million represents a comparable quarter increase of more than 11%. On a year-to-date basis, for the first nine months of 2014, revenue has grown 10%, compared with the same period in 2013. Coupled with ongoing operational leverage and other efficiencies, this revenue growth has produced year-to-date adjusted EBITDA growth of over 13%. Our adjusted earnings per diluted share of $0.08 for the quarter represents an improvement from the $0.01 adjusted earnings per diluted share that we reported for the second quarter of 2014 and is comparable to adjusted earnings per diluted share of $0.08 for the third quarter of 2013. GAAP EPS for the third quarter of $0.05 includes $0.03 per share of non-cash interest expense related to our senior convertible notes. Our EBITDA margin this quarter of 11.3% is just below the 11.4% EBITDA margin that we achieved in the third quarter of last year, primarily because in Q3 of 2013, we recognized a much higher percentage of our full-year target performance based revenue than we did in the third quarter of this year. I will talk more about our expectations for recognizing performance-based revenue for the remainder of the year in just one moment. Cash flow from operations for the quarter totaled just over $30 million and our capital expenditures for the quarter were approximately $11 million. The leverage ratio under our credit agreement at the end of the third quarter dropped slightly to 3.85 times. That's down from 3.9 times at the end of the second quarter. Our financial performance for the third quarter represents significant progress toward meeting our financial guidance for the full year. So now let's turn to our financial guidance for the remainder of 2014. As we noted in our earnings release today, we are reaffirming our financial guidance for 2014. We continue to expect revenue and earnings for the fourth quarter of 2014 to improve sequentially just as they have every quarter this year. While we don't provide quarterly guidance, obviously our reaffirming of the full-year financial guidance creates an implied guidance range for the fourth quarter. Since we aren't updating or narrowing the full year range, the implied guidance range for the fourth quarter is necessarily quite wide. The three factors that we have previously discussed continue to contribute to the width of this range. These factors will once again be essential to determining our fourth quarter and our full-year financial performance. The first and by far the most dominant factor within the fourth quarter is the recognition of performance-based fees tied to contractual targets which, as you know, typically requires a certain amount of time to achieve and/or to measure results. We continue to expect that most of our performance-based revenue for the full year, approximately 80% in fact, will be recognized in the second half of the year. We also continue to expect that the majority of the second half total, approximately 60%, will be recognized during the fourth quarter. We further expect that for the full year of 2014 performance-based revenue will be approximately 5% of total revenue. Because much of the cost related to performance-based revenue recognized during the fourth quarter will have been incurred in previous quarters, there is an outsized impact on the EPS for any variation in our expectations and this contributes to the width of our EPS range. The second factor is ramping revenues under existing contracts. Several of our contracts come with revenue streams that span over time, either through enrollment growth or the expansion of service lines or both. And the final factor is the signing and launching of new business. As we have mentioned before, certain of our services, such as our Ornish Lifestyle Management, Care Transitions and Blue Zones programs aren't limited to a calendar year sales and appointment cycle and there is still more business that we expect to start during the fourth quarter. From a revenue perspective, we continue to expect 2014 revenue to be in a range of $730 million to $760 million, an increase of approximately 10% to 15% over 2013. From an earnings per share perspective, our guidance for 2014 GAAP net loss per share remains in a range of $0.17 to $0.02. This includes our first quarter charge of $0.17 per share to settle a contractual dispute and approximately $0.11 per share of non-cash interest expense. Excluding the settlement charge and non-cash interest, we continue to expect full year adjusted EPS will be in a range of $0.11 to $0.26. We also continue to expect adjusted EBITDA margins will be in a range of 10.5% to 11.5%. With regard to cash flow expectations for 2014, we continue to expect operating cash flows for the full year to be in a range of $75 million to $85 million and capital expenditures to be in a range of $40 million to 45 million or between 5% and 6% of revenue. This would represent the lowest percentage of revenues since fiscal 2007. As most of you know, after several years of elevated levels of investment in our technology and operating platform to build out our unique total population management capabilities, we have now completed most of this planned investment and expect CapEx as a percentage of revenue to return to more historical maintenance levels. In addition, we expect that free cash flow will be applied primarily toward debt repayment, and we expect that the debt to EBITDA ratio, as calculated under our credit agreement, will end the year at or below three times. So just a few final comments. It's worth noting that the revenue growth reflected in the first three quarters of 2014 is coming from all of our customer markets. Because our solutions are integrated into a common infrastructure and they utilized common assets across multiple customer markets, as revenues from any of our customer markets grow we would expect to gain additional leverage from our existing cost structure. As a result, we remain confident in our expectations that our growth at the topline will yield expanding margins at the bottomline for the fourth quarter of 2014 and beyond. With that, operator, we would like to open the call for questions.

[Operator:]

(Operator Instructions). We will go first to Ryan Daniels with William Blair.

[Ryan Daniels:]

Yes, guys. Thanks for taking the questions. Let me start with an outlook on the performance fees. Can you talk a little bit about any internal metrics that you have that give you read on how you are progressing, be it savings, engagement, enrollment, whatever the metrics might be towards achieving those in the fourth quarter?

[Alfred Lumsdaine:]

Sure, Ryan. Thanks for the question. Obviously there is a number of metrics across a number of customer markets and customers. So it's hard to make generalizations, but you know, I will do my best to answer your question directly. We expect to recognize a very high percent of our performance-based fees. That's been our historical experience, and we underwrite our metrics in order to achieve them. Those metrics span such things as cost savings, utilization, the quality, in some cases there are process metrics, in some cases they are tied to well-being and improvement as measured under our Well-Being Index. Others can be milestone-based. So there is any number of potential different measures. But again, I guess I would tell you the common theme is, our historical experience in achieving those is very high and we underwrite those be achieved. So we expect to achieve a very high percent of those metrics in the fourth quarter. And obviously I think have quantified for you, we expect materially higher amount of performance-based fees recognized in Q4 than we recognized in Q3.

[Ryan Daniels:]

Okay. That's helpful color. And then as we look to contract renewals, I guess great news that the third of the big four have renewed. I think you indicated last call, you might have all four o renewed by the end of the third quarter. So curious if it ran into any issues? If there is anything to read into that at all? Any color there? And then another contract renewal, we tend to focus a lot of these big four, I am curious about the rest of your book of business and how the renewals have been in all the one and two contracts that may, in aggregate, be even larger than the other renewals?

[Ben Leedle:]

Hi, Thanks for the question, Ryan. It's Ben. Nothing mysterious or change in terms of the process flow on that four large renewals. Sometimes these things just gets slowed down a little bit in the papering. And so as I mentioned on my prepared remarks, all of the business agreement has been reached. It's processing through its final contracting stages for signature. So we had a high confidence this will get done here in the fourth quarter.

[Ryan Daniels:]

Okay.

[Ben Leedle:]

And then in terms of the others, I know I threw some numbers out through my prepared remarks, but there is a high number of the 62 contracts that we signed to-date that were the either extensions or expansions, which in effect meant that some of those contracts that don't fall into that larger bracket category, the percent of revenues has not a high renewal rate. And we think we shared historically that we can run this contract service business with customer renewals and retention of revenue in the low to mid 90s percent range and we are growing the topline, like we are, that's a net out of that, ends up keeping us in growth mode. And so we believe we are on track to be bale to hit those kind of targeted benchmarks that we look for in our business this year.

[Ryan Daniels:]

Okay, great news, and then final one and I will hop off. I wanted to get a little more color on the LA Fitness agreement. That seems actually fairly sizable, in regards to the quality of that franchise and then the number of locations and I am sure some of that could cannibalize over Sneakers business from other gyms, so it won't augment revenue, albeit it also opens up new markets and maybe drives incremental growth in existing markets. So how do you think of the revenue impact from a large expansion with someone like LA Fitness? Thanks.

[Ben Leedle:]

I think obviously, to your point, some part of that network is going to be regionally dominant in certain areas and so it adds a critical expansion for access in some areas that may be we would have been more limited. So it's really important in that regard. It's a great brand. And I think it just affords us an opportunity to drive more growth. Hard to just immediately quantify that based on number of locations basis. But in some particular markets, obviously it's a critical component of the local network in order to grow the business.

[Ryan Daniels:]

Okay. That's fair. Thanks for the color and congrats on the progress.

[Ben Leedle:]

Thanks, Ryan.

[Operator:]

We will go next to Dave Styblo with Jefferies.

[Dave Styblo:]

Sure. Good afternoon. Thanks for taking the questions. I want to just start a little bit more on the opportunity slide here on something that you haven't talked too much about lately which would be Ornish program. I am hoping you can give us a better update about enrollment and lives or whatever agreement that you have got going on with WellPoint to better give us a sense of how far along you are in the process there and what the pipeline looks like?

[Ben Leedle:]

Sure, Dave. This is Ben. Let me just take a minute and give you kind of our Ornish update at this point. And I would point out, it's like any other product or component of our overall solution. We don't provide details on things that number of contracts or enrollees or specifics of any kind of particular contract for the Ornish program. But I think I can provide just some good sense of the progress that we are making. I can tell you that the first wave of signed agreements that have occurred over the late second quarter into the third and even now into the fourth quarter, all of those are in implementation and/or operations. The agreements are predominantly with large health systems, but a couple of those, I think as you noted in your question, are with health plans, WellPoint and HMSA, where they are acting as distribution partners and payors for the program to support their provider network strategies and their membership. We currently, with the agreements that we have signed, are supporting organizations that operate 69 facilities in 13 states at the health system level with a service area population base of approximately 39 million people. So the engagement [ph] from these early contracts is significant in terms of the opportunity that you are asking about. These organizations have ties with about 25,000 physicians. So we know the drivers of this program are going to be large populations driving the eligible criteria and obviously physicians driving their patients to the center of excellence for these services. The early cohorts of enrollees have been full, and they post a very high completion rate, which is critical. And remember, the program is a 72-hour program. It gets completed in modules typically within about a 10-week period. It's reimbursed by Medicare, and now reimbursed by more and more commercial payors. And the rate of reimbursement between $100 and $130 per hour or you can think of it as kind of on a completed enrollee basis, $7,300 to about $9,500 per participant. Those cohort sizes range 12 to 18 participants in each of those cohorts in a core Ornish team of five discipline specific experts typically handle anywhere between 25 to 30 cohorts on average annually. So there are your pieces to be able to get a sense of the kind of economic power of this. We are paid, if you did remember, a fixed fee on the front-end for certification and training and getting this program set up. And then we participate with our client in the success of the program on enrollee completion at a rate of about 20% of the results. Our pipeline, since the end of the second quarter, has grown further. There are dozens of Ornish program prospects at various stages of the business development process. And as I said, we signed more Ornish agreements during the third quarter, more since the beginning of this fourth quarter and we expect to sign more before the year ends and continue that momentum forward. In this way, we think, as it's early days here still, with the Ornish program. So keep that in mind, but that the Ornish program, we believe is going to be a significant contributor, both to revenue growth for the company as well as expanding margins. So that's the update that I can provide you on Ornish. I hope that helps address your question.

[Dave Styblo:]

Very helpful. It does. If I could ask a second. I wanted to get a better understanding of maybe some of the moving parts here are year-over-year. Obviously you guys talked about EBITDA margin. Those were essentially flat year-over-year. Yet you have another $20 million or so 11% increase on revenue. And just kind of in keeping with the notion that the way your business model works, as you improve margins 100 to 200 basis points for every additional $100 million of revenue, can just help me understand why we are not seeing that leverage on a year-over-year basis right now?

[Alfred Lumsdaine:]

Well, I think the key is, you can't really focus on any individual quarter. It's why we don't give quarterly guidance and it's largely driven by the dynamic of performance-based revenues. I think I said in my prepared remarks, a much higher percentage of our full-year targeted performance-based revenue was recognized in Q3 last year than Q3 this year. Obviously, for the full year, we are expecting 10% to 15% of total revenue increase with a higher percentage of our revenues performance-based than in the previous year. So with the expectation that Q4 will have significantly more performance-based revenues recognized than in Q3 of this year, you can imagine that there is a lot more cost in Q3 of this year tied to those performance-based revenues than they were in Q3 of last year and that drives the flat margins on higher revenue. When we complete our year, clearly our expectation is we are 10% to 15% revenue growth with expanding margins. So it's really important again because the timing of that performance-based revenues and the impact they can have on any quarter to look at longer comparable periods than quarter-over-quarter.

[Dave Styblo:]

Okay, and just a quick clarification on your performance fees. I want to make sure I heard you right that you have said that that's 5% now and I think the prior range was 4% to 5%. Is that my understanding of it?

[Ben Leedle:]

That's right. Obviously there is still potential for rounding inside of that, but as we sit here with the clarity we have, we are expecting it to be approximately 5%.

[Dave Styblo:]

Okay. Thanks for the question.

[Ben Leedle:]

Thank you.

[Operator:]

We will go next to Shawn Bevec with Deutsche Bank.

[Shawn Bevec:]

Hi, guys. Thanks. I just wanted to get more color around the Ornish program in terms of what the WellPoint and some of the other commercial carriers are reimbursing the Ornish program for? Is it limited to the intensive cardiac rehab like CMS reimburses? Or is it broader than that?

[Ben Leedle:]

On the commercial side, we have seen all the commercial payors lineup with the intensive cardiac piece at a minimum and some of those payors are paying at a rate that's in excess of 100% of Medicare, up to as high as what we have seen as 130% of Medicare on an hourly rate basis. That's what gave you that range that I provided in the earlier answer to a question. We also have gotten support from one health plan already who has expanded the criteria and we expect two or three more to follow suit around expanding the criteria to diabetes, early-stage cancer and several risk factors. And so with this program, one of the things that I have talked about publicly is that while we expected to be driven early, particularly by the cardiac diagnosis and eligibilities in reimbursement, I think people and payors are seeing this as a network that's going to get developed across the nation of centers of excellence for lifestyle medicine. And the indications for the application of the program are going to continue to broaden and we have already been successful in achieving that in a material way with a payor and believe a couple more are ready to step forward in the same fashion.

[Shawn Bevec:]

Okay and how much larger would you size the Ornish opportunity if all payors decided to take on some of those other criterion conditions that you mentioned?

[Ben Leedle:]

Those are going to be driven by prevalence rates. And I think the general prevalence rate in entire U.S. for eligibility for Ornish and I am not backing out of the kids under 18, but just if you took an all-in number, you are going to be looking at about 4% of the population would be meeting the eligibility criteria. If you threw in one other thing like diabetes, that number is going to expand three, fourfold based on the prevalence and incidence of Type II diabetes from an eligibility now. Whether or not you get that full yield, because of the relative both physician and patient motivation in some of the milder expressions of something like diabetes, would still yet to be seen. We are going to learn that over the next year or two with the criteria's authority afforded that work. But then again, we believe that adding the additional diagnosis create multiple opportunity expansion from just the cardiovascular aspect of this.

[Shawn Bevec:]

Okay. Thanks, and then last one. Have you been having any discussions with CMS to broaden reimbursement for Ornish beyond just in terms of cardiac rehab? And how are those discussions going, if so?

[Ben Leedle:]

Yes. No, Dr. Ornish has been doing that for some time. I think if he were answering this question, he would say, it took 15 years and an Act of Congress to get the cardiac diagnosis and eligibility criteria established. I think CMS would speak very favorably on this program based on the research he has done for other indications like early-stage prostate cancer and Type II diabetes and even other risk factors. I don't know that there would be another Act of Congress required to get that to happen. But I know for sure that CMS is extremely positive and supportive and encouraging the payors to step forward and get this treatment method applied to other chronic illnesses.

[Shawn Bevec:]

All right. Thanks, gentlemen.

[Ben Leedle:]

Thank you.

[Operator:]

We will go next to Josh Raskin with Barclays.

[Josh Raskin:]

Hi, thanks. Good evening. Just thought I would flush out the fourth quarter range a little bit. I appreciate Alfred. I think he gave us some of the good numbers there. And it sounds like the fourth quarter guidance implies a revenue number of $187 million to $217 million. So obviously the low end is up about $1 million sequentially. So that seems like a very conservative number. But the high end is up about $31 million and I think if I do the math, the fourth quarter performance fees are only about $18 million and that seems to be the majority of the three items. So is it fair to say, something closer to the midpoint or lower to midpoint? I am just trying to figure out what could really drive it to the high end of that range.

[Alfred Lumsdaine:]

So I would say, it is the three factors I talked about. Obviously we have expectations for our performance-based revenues. We also have opportunities under some of our agreements for gain share opportunity. So there can be elements where we could exceed what we have in our current expectations. And then I talked about the two other factors. We are ramping revenues under existing contracts and then the last piece is potential new revenues and they are certain of our programs. I had highlighted three of them. Our Care Transitions, Dr. Ornish's program and our Blue Zones capabilities, all of which we have revenues starting inside of Q4. And there is opportunities yet and still as we sit here today for sales and starts within the period. So those three factors, along with your highlighting the performance-based revenue, which would be in that $18 million to $20 million range at expectations to drive the bulk of the size of the range.

[Ben Leedle:]

And then frankly, Josh, our policy is, if were squarely in the range, we are not going to update guidance. We don't give quarterly guidance for all the reasons that you know.

[Josh Raskin:]

Right, okay. All right. I didn't realize. So it sounds like the performance fees, I think you said earlier is the biggest, but that maybe only be maybe half of the story or something like that. Is that correct?

[Alfred Lumsdaine:]

It is certainly the dominant piece of that story.

[Josh Raskin:]

Okay, but dominant may mean only half. Is that right?

[Alfred Lumsdaine:]

It is going to be the largest. Certainly, the largest single piece.

[Josh Raskin:]

Okay and then questions, just on the G&A costs this quarter. I sort of look at them as a percentage of revenues and my understanding the revenues were up, but the ratio was about 8.5% of revenues and that was down almost 140 basis points year-over-year. I think in the first half, you were running about up 100 basis points. So you actually saw $1 million sequential decline in G&A costs. I am just curious, what's in there and what's driving that reduction in the G&A sequentially?

[Alfred Lumsdaine:]

Yes. I think the biggest piece, and I have to go back and quantify, but it is going to be -- we had an elevated level of legal and other costs related to the Activist shareholder campaign. And I think if you go back to my comments in Q2, we actually put some quantification on that. But I think you will find that that's the majority, if you will, of the decline.

[Josh Raskin:]

Okay. So that really tapered off in 3Q?

[Alfred Lumsdaine:]

That's right. It would. It ramped through most of Q2 and then at the end of Q2 essentially would, once we settle that cost, the drain was over.

[Josh Raskin:]

Got you. So 3Q is probably a better run rate then.

[Alfred Lumsdaine:]

I think it's fair.

[Josh Raskin:]

Okay and then I know you guys only give the revenue mix annually, but I am just curious you guys gave some guidance on that about a year ago. Any sort of material changes in terms of how your revenue growth has developed relative to those initial expectations? I mean when you gave the same guidance range $730 million to $760 million, you put some parameters around the $5 where the growth would be. Has there been any sort of major changes? Anything we should expect to see next quarter?

[Alfred Lumsdaine:]

Yes. Obviously it would be too early to pin it down and again because of the dynamics we have talked about. We only want to do it a once a year. But I wouldn't say there is any wild variance from where we expected we would be at this point in terms of the mix of our revenues among our customer markets.

[Josh Raskin:]

Okay. So clearly MA plans and commercial health plan is still by far the large majority of it and even though it's slower growth of those two buckets, they are still the wide majority of the revenue total?

[Alfred Lumsdaine:]

Yes. I think we are very much, again, within 1% or 25 of all the percentages we would have given you at start of the year.

[Josh Raskin:]

Okay. That's very close. Okay. Thanks, Alfred.

[Alfred Lumsdaine:]

Thank you.

[Operator:]

And we will go next to Brooks O'Neil with Dougherty & Company.

[Brooks O'Neil:]

Good afternoon, guys. I have a couple of questions on kind of two different parts of your business model. I noticed obviously and applaud the renewals of the SilverSneakers programs with United and WellPoint. I was hoping you might be able to just give us a sense sort of for the materiality of that program in the overall mix of your business and how you are feeling about it to position going forward?

[Ben Leedle:]

I would say, obviously we call those out as critically important financial components of our business, but also I think just strategically and credibility in the market, the staying power of the value of the SilverSneakers program. We think it means a lot that organizations of that size have once again decided to continue to go forward with our program. So they will continue to be a significant part of our business moving forward.

[Brooks O'Neil:]

Great and then secondly, obviously being an older fellow myself and having been around you guys for a while, I think back to the days when we talked you know at huge length about importance of disease management and care management in general. Clearly, at least the way you guys are talking about the business today, we rarely hear those terms. We really I think are encouraged to think about that. And I am just curious, where the world stands as it relates to that and I guess why has it fallen off because it still seems central to getting our arms around the growth of health spending in this country?

[Ben Leedle:]

I think your point is spot on. And so while the business structures and models for how people want to buy and have disease management delivered have changed. Nobody is saying, hey, you have got to leave the people with chronic illnesses alone and we will be just fine from a society in terms of cost. I think everybody identifies that if you were to just simply be disease agnostic person who looks for the highest costs people projected in any population, and you then identify that cohort off of analytics and came back and said, what's the underlying sources and cause of them being at high risk for continued or future high cost, 755 to 80% of that cohort is going to have one or more chronic illnesses. And so I think the point is, disease management hasn't gone away. People have renamed it, have integrated it with lifestyle risk management and health coaching on a continuum and have broken down the silo. So they basically said, let's orient solutions around people not diseases, because even people with diabetes or cardiovascular disease may still smoke, or maybe overweight and so rather than treat them for their risk or for their disease, the market has moved to a model that has asked for them getting, exactly what we are delivering, an integrated approach for those individuals to bring all resources to bear in a very coordinated fashion. Out of the 23 that I announced in my prepared remarks, and in the release today, seven of those were for disease management. And so those are focused largely, as you would expect, around cardiovascular and diabetes. These happen to be very sharply focused around helping to continue to address the challenge that diabetes places upon payors and providers. So it's still there in the mix. I think you hear people talk less about it. I think it's been absorbed into the construct of total population health management. But it's one of the things where focused solely on it, at the disease level probably is going to be difficult to grow on that alone. You have seen the evidence of our approach to transform our capabilities to more broadly integrated across multiple needs for people.. But if you ignore it, I just don't see how you are going to drive the near-term cost savings at the market demands. So to your point, you probably hear less about it from us, in that distinct way. You probably hear less about it in a distinct way from the marketplace. But I will tell you what, everybody is still doing it, Brooks. And it's a key creating the value proposition.

[Brooks O'Neil:]

That's what I have always thought. So I am glad to hear all that. And thank you very much.

[Ben Leedle:]

Yes.

[Operator:]

We will go next to Carl McDonald with Citi.

[Carl McDonald:]

Great. Thank you. I was just interested if there was any update from the Special Review Committee of the Board and I would be particularly interested if the Board has come to a agreement around the separability of the SilverSneakers business and any discussion around valuation there.

[Ben Leedle:]

Yes. I really don't have anything to tell you that's changed. The business continues to run. The Strategic Review Committee functions according to its charter on its establishment. And I think that that was laid out pretty publicly and we have integrated three new directors on to the Board and the Board is governing as you would expect it to.

[Carl McDonald:]

Okay. Thank you.

[Operator:]

There are no further questions at this time. I would like to turn the conference back to Mr. Leedle for closing comments.

[Ben Leedle:]

We really do appreciate everybody's time this afternoon and certainly Alfred and I and Chip Wochomurka who leads our IR efforts are here to take calls and we look forward to talking with you soon.

[Operator:]

This does conclude today's conference. Thank you for your participation.