☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of ~~November 6, 2019,~~August 4, 2020, there were outstanding ~~47,994,056~~48,560,369 shares of the registrant’s common stock, par value $.001 per share (“Common Stock”).

	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Current assets:
Cash and cash equivalents	$	6,857		$	1,933		$	60,274		$	2,486
Accounts receivable, net		90,719			67,139			36,339			97,596
Inventories		23,720			—			22,088			36,407
Prepaid expenses		14,910			3,655			15,058			18,255
Income taxes receivable		439			720
Other current assets		5,421			4,658			8,110			6,993
Total current assets		142,066			78,105			141,869			161,737

Property and equipment, net of accumulated depreciation of $37,902 and $30,711 respectively		50,396			16,341
Right-of-use assets		44,787			—
Property and equipment, net of accumulated depreciation of $53,525 and $42,510 respectively								52,436			52,909
Right-of-use assets, operating leases								35,300			41,518
Right-of-use assets, finance leases								1,356			1,680
Intangible assets, net		951,711			29,049			593,520			689,686
Goodwill, net		791,735			334,680			535,135			654,635
Other long-term assets		24,809			23,904
Other assets								21,554			23,740
Total assets	$	2,005,504		$	482,079		$	1,381,170		$	1,625,905

Current liabilities:
Accounts payable	$	46,903		$	29,103		$	35,492		$	46,480
Accrued salaries and benefits		8,876			6,512			10,539			13,071
Accrued liabilities		63,619			42,563			42,020			55,663
Deferred revenue		13,630			582			12,440			12,037
Current portion of debt		—			57
Current portion of lease liabilities		13,451			—
Current portion of long-term liabilities		4,675			2,255
Income taxes payable								7,835			405
Current portion of operating lease liabilities								13,157			13,131
Current portion of finance lease liabilities								644			624
Current portion of long-term debt								9,775			—
Current portion of other long-term liabilities								15,664			4,947
Total current liabilities		151,154			81,072			147,566			146,358

Long-term debt		1,035,063			30,589			1,002,547			1,048,127
Long-term lease liabilities		33,784			—
Long-term operating lease liabilities								23,515			30,321
Long-term finance lease liabilities								753			1,080
Long-term deferred tax liability		222,214			319			137,205			160,846
Other long-term liabilities		17,891			1,098			31,863			12,263

Commitments and contingent liabilities

Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, NaN outstanding		—			—			—			—
Common Stock $.001 par value, 120,000,000 shares authorized, 47,876,048 and 41,049,418 shares outstanding, respectively		48			41
Common Stock $.001 par value, 120,000,000 shares authorized, 48,548,741 and 48,156,786 shares outstanding, respectively								48			48
Additional paid-in capital		503,799			347,487			505,760			504,419
Retained earnings		85,808			49,655
Accumulated deficit								(406,840	)		(237,284	)
Treasury stock, at cost, 2,254,953 shares in treasury		(28,182	)		(28,182	)		(28,182	)		(28,182	)
Accumulated other comprehensive loss		(16,075	)		—			(33,065	)		(12,091	)
Total stockholders' equity		545,398			369,001			37,721			226,910
Total liabilities and stockholders' equity	$	2,005,504		$	482,079		$	1,381,170		$	1,625,905

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Revenues

$
303,897

$
151,467

$
858,369

$
453,261

Cost of revenue (exclusive of depreciation and
amortization of $7,870, $1,071, $18,216, and $3,041,
respectively, included below)

178,640

103,678

513,736

313,491

Marketing expenses

46,719

3,373

125,470

10,870

Selling, general and administrative expenses

26,958

7,813

83,810

24,136

Depreciation and amortization

9,700

1,204

22,366

3,461

Restructuring and related charges

281

—

4,225

124

Operating income

41,599

35,399

108,762

101,179

Interest expense

23,006

1,013

54,334

7,948

Income before income taxes

18,593

34,386

54,428

93,231

Income tax expense

4,673

9,029

18,157

23,856

Income from continuing operations

13,920

25,357

36,271

69,375

Income from discontinued operations, net of tax

—

—

—

901

Net income

13,920

25,357

36,271

70,276

Earnings per share - basic:

Continuing operations

$
0.29

$
0.63

$
0.79

$
1.74

Discontinued operations

$
—

$
—

$
—

$
0.02

Net income

$
0.29

$
0.63

$
0.79

$
1.76

Earnings per share - diluted:

Continuing operations

$
0.29

$
0.59

$
0.78

$
1.60

Discontinued operations

$
—

$
—

$
—

$
0.02

Net income

$
0.29

$
0.59

$
0.78

$
1.63

Comprehensive income

$
10,081

$
25,357

$
20,196

$
70,276

Weighted average common shares and equivalents:

Basic

47,923

40,010

45,996

39,898

Diluted

48,584

42,827

46,585

43,234

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020			2019
Revenues:
Services	$	79,856	$	157,481	$	239,548		$	314,008
Products		182,742		182,896		360,705			240,463
Total revenues		262,598		340,377		600,253			554,471

Cost of revenue:
Services (exclusive of depreciation of $2,240, $1,503, $4,071, and $2,859, respectively, included below)		31,886		111,073		147,034			224,916
Products (exclusive of depreciation and amortization of $8,587, $5,861, $19,280, and $7,488, respectively, included below)		86,355		83,685		170,363			110,181
Total cost of revenue		118,241		194,758		317,397			335,097

Marketing expenses		51,105		54,603		138,177			78,751
Selling, general and administrative expenses		23,471		29,667		51,480			56,852
Depreciation and amortization		12,919		9,084		27,682			12,666
Impairment loss		—		—		199,500			—
Restructuring and related charges		1,009		2,352		1,752			3,943
Operating income (loss)		55,853		49,913		(135,735	)		67,162

Interest expense		21,235		23,661		42,898			31,328
Income (loss) before income taxes		34,618		26,252		(178,633	)		35,834

Income tax expense (benefit)		6,107		8,115		(9,038	)		13,483
Net income (loss)		28,511		18,137		(169,595	)		22,351

Earnings (loss) per share:
Basic	$	0.59	$	0.38	$	(3.49	)	$	0.49
Diluted ⁽¹⁾	$	0.58	$	0.37	$	(3.49	)	$	0.49

Comprehensive income (loss)	$	27,366	$	5,901	$	(190,569	)	$	10,115

Weighted average common shares and equivalents:
Basic		48,711		47,790		48,662			45,165
Diluted ⁽¹⁾		48,794		48,461		48,662			45,719

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Accumulated Other Comprehensive Loss			Total			Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance, June 30, 2018	$	—	$	40	$	352,230		$	(4,229	)	$	(28,182	)	$	—		$	319,859
Comprehensive income		—		—		—			25,357			—			—			25,357
Balance, March 31, 2019																				$	—	$	47	$	491,548		$	53,751		$	(28,182	)	$	—		$	517,164
Comprehensive income (loss)																					—		—		—			18,137			—			(12,236	)		5,901
Exercise of stock options		—		—		385			—			—			—			385			—		—		137			—			—			—			137
Tax withholding for share-based compensation		—		—		(684	)		—			—			—			(684	)		—		—		(794	)		—			—			—			(794	)
Share-based employee compensation expense		—		—		1,663			—			—			—			1,663			—		—		6,898			—			—			—			6,898
Balance, September 30, 2018	$	—	$	40	$	353,594		$	21,128		$	(28,182	)	$	—		$	346,580
Balance, June 30, 2019																				$	—	$	47	$	497,789		$	71,888		$	(28,182	)	$	(12,236	)	$	529,306

Balance, December 31, 2017	$	—	$	40	$	349,243		$	(49,148	)	$	(28,182	)	$	—		$	271,953
Comprehensive income		—		—		—			70,276			—			—			70,276
Exercise of stock options		—		—		1,521			—			—			—			1,521
Tax withholding for share-based compensation		—		—		(2,083	)		—			—			—			(2,083	)
Share-based employee compensation expense		—		—		4,913			—			—			—			4,913
Balance, September 30, 2018	$	—	$	40	$	353,594		$	21,128		$	(28,182	)	$	—		$	346,580

Balance, June 30, 2019	$	—	$	47	$	497,789		$	71,888		$	(28,182	)	$	(12,236	)	$	529,306
Balance, December 31, 2018																				$	—	$	41	$	347,487		$	49,655		$	(28,182	)	$	—		$	369,001
Comprehensive income (loss)		—		—		—			13,920			—			(3,839	)		10,081			—		—		—			22,351			—			(12,236	)		10,115
Issuance of Common Stock in connection with Merger		—		—		—			—			—			—			—			—		6		132,832			—			—			—			132,838
Share-based compensation Replacement Awards related to Merger and attributable to pre-combination services		—		—		—			—			—			—			—
Share-based compensation replacement awards related to Merger and attributable to pre- combination services																					—		—		9,107			—			—			—			9,107
Exercise of stock options		—		1		329			—			—			—			330			—		—		370			—			—			—			370
Tax withholding for share-based compensation		—		—		(328	)		—			—			—			(328	)		—		—		(1,135	)		—			—			—			(1,135	)
Share-based employee compensation expense		—		—		6,009			—			—			—			6,009			—		—		9,257			—			—			—			9,257
Other		—		—		—			—			—			—			—			—		—		(129	)		(118	)		—			—			(247	)
Balance, September 30, 2019	$	—	$	48	$	503,799		$	85,808		$	(28,182	)	$	(16,075	)	$	545,398
Balance, June 30, 2019																				$	—	$	47	$	497,789		$	71,888		$	(28,182	)	$	(12,236	)	$	529,306

Balance, December 31, 2018	$	—	$	41	$	347,487		$	49,655		$	(28,182	)	$	—		$	369,001
Balance, March 31, 2020																				$	—	$	48	$	503,049		$	(435,371	)	$	(28,182	)	$	(31,920	)	$	7,624
Comprehensive income (loss)		—		—		—			36,271			—			(16,075	)		20,196			—		—		—			28,511			—			(1,145	)		27,366
Issuance of Common Stock in connection with Merger		—		6		132,832			—			—			—			132,838
Share-based compensation Replacement Awards related to Merger and attributable to pre-combination services		—		—		9,107			—			—			—			9,107
Tax withholding for share-based compensation																					—		—		(154	)		—			—			—			(154	)
Share-based employee compensation expense																					—		—		2,865			—			—			—			2,865
Other																					—		—		—			20			—			—			20
Balance, June 30, 2020																				$	—	$	48	$	505,760		$	(406,840	)	$	(28,182	)	$	(33,065	)	$	37,721

Balance, December 31, 2019																				$	—	$	48	$	504,419		$	(237,284	)	$	(28,182	)	$	(12,091	)	$	226,910
Comprehensive income (loss)																					—		—		—			(169,595	)		—			(20,974	)		(190,569	)
Exercise of stock options		—		1		700			—			—			—			701			—		—		601			—			—			—			601
Tax withholding for share-based compensation		—		—		(1,464	)		—			—			—			(1,464	)		—		—		(2,949	)		—			—			—			(2,949	)
Share-based employee compensation expense		—		—		15,266			—			—			—			15,266			—		—		3,689			—			—			—			3,689
Other		—		—		(129	)		(118	)		—			—			(247	)		—		—		—			39			—			—			39
Balance, September 30, 2019	$	—	$	48	$	503,799		$	85,808		$	(28,182	)	$	(16,075	)	$	545,398

Balance, June 30, 2020																				$	—	$	48	$	505,760		$	(406,840	)	$	(28,182	)	$	(33,065	)	$	37,721

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Income from continuing operations	$	36,271		$	69,375
Income from discontinued operations		—			901
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	(169,595	)	$	22,351
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		22,366			3,461			27,682			12,666
Amortization and write-off of deferred loan costs		3,256			1,101			2,315			3,073
Amortization of debt discount		2,593			4,140			2,049			389
Share-based employee compensation expense		15,266			4,913			3,689			9,257
Gain on sale of TPHS business		—			(1,304	)
Impairment of goodwill and intangible assets								199,500			—
Deferred income taxes		10,489			23,812			(16,447	)		10,789
Increase in accounts receivable, net		(1,407	)		(12,181	)
Decrease (increase) in accounts receivable, net								61,257			(3,754	)
Decrease in inventory		14,775			—			14,319			8,719
Decrease in other current assets		3,608			1,544			1,363			1,057
Decrease in accounts payable		(9,917	)		(1,285	)
Decrease in accrued salaries and benefits		(592	)		(10,626	)
Increase (decrease) in accounts payable								9,411			(5,872	)
(Decrease) increase in accrued salaries and benefits								(2,532	)		570
Decrease in other current liabilities		(14,138	)		(11,235	)		(5,925	)		(8,266	)
Increase in deferred revenue		345			—
Increase (decrease) in deferred revenue								403			(2,725	)
Other		1,908			1,912			3,454			1,345
Net cash flows provided by operating activities	$	84,823		$	74,528		$	130,943		$	49,599

Cash flows from investing activities:
Acquisition of property and equipment	$	(15,354	)	$	(6,456	)	$	(10,362	)	$	(8,918	)
Proceeds from sale of MeYou Health		—			1,416
Business acquisitions, net of cash acquired		(1,062,818	)		—			—			(1,062,818	)
Net cash flows used in investing activities	$	(1,078,172	)	$	(5,040	)	$	(10,362	)	$	(1,071,736	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt	$	1,505,245		$	173,350		$	196,525		$	1,399,945
Payments of long-term debt		(478,479	)		(271,923	)		(236,375	)		(347,879	)
Proceeds from settlement of cash convertible notes hedges		—			141,246
Payments related to settlement of cash conversion derivative		—			(141,246	)
Payments related to tax withholding for share-based compensation		(1,464	)		(2,083	)		(2,949	)		(1,135	)
Exercise of stock options		701			1,521			601			370
Deferred loan costs		(30,189	)		—			—			(30,189	)
Principal payments related to financing leases								(306	)		(22	)
Change in cash overdraft and other		2,471			2,887			(20,289	)		3,530
Net cash flows provided by (used in) financing activities	$	998,285		$	(96,248	)
Net cash flows (used in) provided by financing activities							$	(62,793	)	$	1,024,620

Effect of exchange rate changes on cash	$	(12	)	$	(37	)	$	—		$	(12	)

Net increase in cash and cash equivalents	$	4,924		$	(26,797	)	$	57,788		$	2,471

Cash and cash equivalents, beginning of period	$	1,933		$	28,440		$	2,486		$	1,933

Cash and cash equivalents, end of period	$	6,857		$	1,643		$	60,274		$	4,404

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In our opinion, the accompanying consolidated financial statements of Tivity Health^®, Inc. and its wholly-owned subsidiaries, including the results of Nutrisystem^®, Inc. (“Nutrisystem”) acquired on March 8, 2019 (collectively, “Tivity Health,” the “Company,” or such terms as “we,” “us,” or “our”) reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. In preparing our consolidated financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and (2) the reported amounts of revenues and expenses during the reporting period. By their nature, estimates are subject to an inherent degree of uncertainty. Due to the significant uncertainty relating to the potential future impacts of the coronavirus pandemic on our business and the overall market, actual results could differ from those estimates, including, but not limited to, estimates of fair value of goodwill and indefinite-lived intangible assets, allowances for doubtful accounts, and valuation allowances on deferred tax assets. Our consolidated statements of operations include results of Nutrisystem from March 8, 2019 forward. We have reclassified certain items in prior periods to conform to current classifications.

Following the acquisition of Nutrisystem (the “Merger”), we organize and manage our operations within 2 reportable segments, based on the types of products and services they offer: Healthcare and Nutrition. The Healthcare segment is comprised of our legacy business and includes SilverSneakers^® senior fitness, Prime^® Fitness, ~~and~~ WholeHealth Living^®and Wisely Well^TM. The Nutrition segment is comprised of Nutrisystem’s legacy business and includes the Nutrisystem^® and the South Beach Diet^®~~products.~~programs.

Effective July 31, 2016, we sold our total population health services (“TPHS”) business to Sharecare, Inc. Results of operations for the TPHS business have been classified as discontinued operations for all periods presented in the consolidated financial statements. We have omitted certain financial information that is normally included in financial statements prepared in accordance with U.S. GAAP but that is not required for interim reporting purposes. You should read the accompanying consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~On December 9, 2018, we entered into an Agreement~~In January 2020, the Secretary of the U.S. Department of Health and ~~Plan~~Human Services (“HHS”) declared a national public health emergency due to a novel strain of ~~Merger (the “Merger Agreement”) with Nutrisystem, a provider~~coronavirus, which causes the disease known as “COVID-19”. In March 2020, the World Health Organization characterized the outbreak of weight management products and services, and Sweet Acquisition, Inc., a wholly-owned subsidiary of Tivity Health (“Merger Sub”). The Merger Agreement provided that Merger Sub would merge with and into Nutrisystem, with Nutrisystem survivingCOVID-19 as a ~~wholly-owned subsidiary~~global pandemic, and COVID-19 continues to spread throughout the United States and other countries. Many state and local governments, together with public health officials, have recommended and mandated precautions to mitigate the spread of ~~Tivity Health (the “Merger”). The Merger was completed o~~COVID-19, including ordering closure of certain businesses and imposing stay-at-home orders and social distancing guidelines for individuals. Such measures have resulted in significantly reduced demand for many businesses that have continued in operation. n

By March ~~8, 2019 (“Closing”). At Closing,~~ except for certain excluded shares, each share of Nutrisystem common stock outstanding immediately prior to Closing was converted into the right to receive $38.75 in cash, without interest, and 0.2141 of a share of Tivity Health Common Stock (“Exchange Ratio”) (with cash payable in lieu of any fractional shares). Nutrisystem shares excluded from the conversion were those shares held by Nutrisystem as treasury stock and shares with respect to which appraisal rights have been properly exercised in accordance with the General Corporation Law31, 2020, substantially all of the ~~State~~fitness centers in our national network were temporarily closed, which had an adverse impact on the results of ~~Delaware.~~operations in our Healthcare segment for the first quarter of 2020 because a significant portion of our Healthcare segment revenues from our SilverSneakers program is based on member visits to a fitness partner location. A substantial number of our fitness partner locations remained closed through April, with some locations reopening in May and additional locations reopening in June. For the month of June 2020, approximately 66% of our fitness partner locations reported at least one visit from our SilverSneakers program. For the second quarter of 2020, the average monthly total participation levels of our SilverSneakers members were significantly below historical levels, and we also experienced a decline in paid subscribers for Prime Fitness, each of which adversely impacted revenues in our Healthcare segment.

We do not believe that t~~he acquisition~~COVID-19-related developments had a material impact on the results of ~~Nutrisystem will enable us to offer, at scale, an integrated portfolio~~operations or cash flows of ~~fitness, nutrition and social engagement solutions to support a healthy lifestyle and to address weight management, chronic conditions, and social determinants~~our Nutrition segment for the first or second quarters of health. The fair value of consideration transferred at Closing was $1.3 billion (“Merger Consideration”), which includes cash consideration, the fair value of the stock consideration, and the fair value of the consideration for Nutrisystem equity awards assumed by Tivity Health that2020. While overall we did not experience any significant disruptions, interruptions, or increased costs related to ~~pre-combination services (see Note 8)~~our supply chain, inventory, or distribution channels as a result of COVID-19, we experienced delays in fulfilling orders for our Nutrition segment’s products at certain of our warehouses due to some employees of our fulfillment provider testing positive for COVID-19. ~~The following table summarizes~~ As a result, we incurred incremental expense of $1.3 million in the ~~components~~second quarter related to increased labor rates and

overtime for employees of our fulfillment provider as well as additional shipping and related charges as we transferred the ~~Merger Consideration:~~fulfillment of certain orders to other warehouses that were farther from the customer’s delivery destination.

We have taken a number of actions in response to the pandemic, including the following:

We performed a valuation analysis of the fair market value of Nutrisystem’s assets and liabilities as of Closing. The following table sets forth an allocation of the Merger Consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill. During the three months ended June 30, 2019, we adjusted the preliminary purchase price allocation based on additional information obtained regarding facts and circumstances which existed as of the acquisition date. These adjustments resulted in a decrease of $15 million to the estimated fair value of intangible assets, an increase of $11.4 million to goodwill, and a decrease of $3.6 million to deferred tax liabilities. This allocation of the Merger Consideration may be subject to further revision if new facts and circumstances arise over the measurement period, which may extend up to one year from Closing.

~~We consolidated Nutrisystem’s operating results into our financial statements beginning on~~As a result of the COVID-19 pandemic, in March ~~8, 2019. Refer to Note 18 for revenue and profit recognized from the Nutrition segment during the three and nine months ended September 30, 2019.~~

~~The following financial information presents the pro forma combined company results as if the acquisition of Nutrisystem had occurred on January 1, 2018:~~

~~The above pro forma results are based on assumptions and estimates, which~~2020, we believe to be reasonable. They are not the operating results that would have been realized had the acquisition actually closed on January 1, 2018 and are not necessarily indicative of our ongoing combined operating results. The pro forma results include adjustments related to purchase accounting, acquisition and integration costs, financing, and amortization of intangible assets. There are no material non-recurring pro forma adjustments reflectedexperienced a significant decline in the ~~pro forma results for the three months ended September 30, 2019 or September 30, 2018. Material non-recurring pro forma adjustments reflected~~Company’s market capitalization and in the ~~pro forma results for the nine months ended September 30, 2019 include:~~ ~~(1) the~~actual and forecasted operating results of Nutrisystem from January 1, 2019 to March 7, 2019, (2) acquisition, integration, and restructuring cost decrease of $33.4 million, and (3) income tax expense decrease of $2.7 million (see Note 9). For the nine months ended ~~September~~our Healthcare segment, ~~30, 2018, material non-recurring pro forma adjustments reflected~~ in ~~the pro forma results include:~~ ~~(1)~~ ~~cost of revenue increase of $2.8 million due~~addition to the ~~purchase accounting mark-up~~unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of ~~inventory, (2) acquisition, integration,~~2020 necessitating an impairment evaluation of our goodwill (for each of our reporting units) and ~~restructuring cost increase~~indefinite-lived intangible assets (which consist of ~~$38.7~~the Nutrisystem tradename and the SilverSneakers tradename). Through this evaluation, management concluded that the fair value of goodwill allocated to the

Nutrition business unit as well as the fair value of the Nutrisystem tradename were below their carrying amounts, and we recorded an impairment loss of $199.5 million, including $80.0 million related to the Nutrisystem tradename and ~~(3) income tax increase~~$119.5 million related to goodwill allocated to the Nutrition segment. There were 0 impairment triggers during the second quarter of ~~$2.7 million (see Note 9).~~2020 related to our goodwill or indefinite-lived intangible assets.

In ~~August 2017,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2017-12, “Derivatives~~2020-04, “Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASC 848 contains temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, such as a transition away from the use of LIBOR. ASC 848 was effective for the Company as of January 1, 2020. The provisions of ASC 848 are available through December 31, 2022, at which time the reference rate replacement activity is expected to have been completed. The provisions of ASC 848 must be applied at a Topic, Subtopic or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. The accounting relief provided by ASC 848 is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. Modifications that are unrelated to reference rate reform will scope out a given contract. ASC 848 allows for different elections to be made at different points in time, and the timing of those elections will be documented as applicable. For the avoidance of doubt, we intend to reassess the elections of optional expedients and exceptions included within ASC 848 related to our hedging activities and will document the election of these items on a quarterly basis. In March 2020, we elected the expedient that allows us to assume that our hedged interest payments are probable of occurring regardless of any expected modification in their terms related to reference rate reform. In addition, we have the option to change the method of assessing effectiveness upon a change in the critical terms of the derivative or the hedged transactions and upon the end of relief under ASC 848. In June 2020, we elected to (i) continue the method of assessing effectiveness as documented in the original hedge documentation and (ii) apply the expedient wherein the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. We will also apply the aforementioned elections to any future designated cash flow hedging relationship.

In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): ~~Targeted Improvements to~~Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting ~~for Hedging Activities”~~Purposes" (“ASU ~~2017-12”~~2018-16”), which ~~amends~~adds the hedge accounting recognition and presentation requirements. ASU 2017-12 eliminates the concept of recognizing periodic hedge ineffectiveness for cash flow and net investment hedges and allows the entity to apply the shortcut method to partial-term fair value hedges ofOIS rate based on SOFR as a U.S. benchmark interest rate ~~risk. We adopted~~to facilitate the LIBOR to SOFR transition and provide lead time for entities to prepare for changes to interest rate risk hedging strategies. ASU ~~2017-12~~2018-16 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. As of March 31, 2020, the benchmark interest rate in ~~May 2019 upon entering into~~our existing interest rate swap agreements ~~as described in Note 14. We do not anticipate that adopting~~is LIBOR. The adoption of this standard ~~will~~did not have an impact on our financial position, results of operations, ~~and~~or cash ~~flows.~~flows.

In March 2016, the FASB issued ASU No. 2016-04, “Liabilities – Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” (“ASU 2016-04”). ASU 2016-04 aligns recognition of the financial liabilities related to prepaid stored-value products (for example, gift cards) with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), for non-financial liabilities. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. We adopted ASU 2016-04 in March 2019 upon acquiring Nutrisystem. We do not anticipate that adopting this standard will have a material impact on our consolidated financial statements.

~~On January 1, 2019, we adopted ASU~~ ~~No. 2016-02, “Leases” (“ASC 842”), which requires that lessees recognize assets and liabilities for leases with lease terms greater than 12 months in the statement of financial position.~~ We elected to recognize the cumulative effect of initially applying the standard as an adjustment to beginning retained earnings as of January 1, 2019. The significant majority of our leases are classified as operating leases. As of January 1, 2019, we recognized a right-of-use asset of $27.0 million and lease liabilities of $29.7 million. On March 8, 2019, we assumed existing leases from Nutrisystem and recognized additional right-of-use assets and lease liabilities of $22.1 million each. In addition, we elected the following practical expedients available under ASC 842: (1) the package of practical expedients whereby we are not required to reassess upon adoption of ASC 842 (a) whether a contract is or contains a lease, (b) lease classification, and (c) initial direct costs (ASC 842-10-65-1(f)); and (2) the short-term lease measurement and recognition exemption (ASC 842-20-25-2). ASC 842 also requires significant new disclosures about leasing activity.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other” (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests in fiscal years beginning after December 15, 2019 and is required to be applied prospectively. Early adoption is allowed for annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted ASU 2017-04 on October 1, 2019. ~~We do not anticipate that adopting this standard will have a material impact on our consolidated financial statements~~As further discussed in Note 12, we recorded impairment losses related to goodwill during the fourth quarter of 2019 and ~~related disclosures~~the first quarter of 2020.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for fiscal years beginning on or after December 15, 2019, including interim periods therein, and is generally required to be applied retrospectively, except for certain components that are to be applied prospectively. ~~Early~~The adoption ~~is permitted for any eliminated or modified disclosures. We do not anticipate that adopting~~of this standard ~~will~~did not have a material impact on our ~~disclosures.~~consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement. This standard is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal

years. ~~We do not anticipate that adopting~~The adoption of this standard ~~will~~did not have a material impact on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires companies to measure credit losses for financial assets held at the reporting date utilizing a methodology that reflects current expected credit losses over the lifetime of such assets. ASU 2016-13 iswas effective for the Company on January 1, 2020 and is generally required to be applied using the modified retrospective approach, with limited exceptions for specific instruments. ~~We do not anticipate that adopting~~The adoption of this standard ~~will~~did not have ana material impact on our consolidated financial statements and related disclosures.

~~Beginning in 2018, we~~We account for revenue from contracts with customers in accordance with Accounting Standards Codification (“ASC”) Topic 606. The unit of account in ASC Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided over a period of time. ASC Topic 606 requires that a contract's transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when or as the performance obligation is satisfied.

Our Healthcare segment earns revenue from 3 programs, ~~SilverSneakers®~~SilverSneakers senior fitness, ~~Prime®~~Prime Fitness and WholeHealth ~~Living~~^TM.Living. We provide the SilverSneakers senior fitness program to members of Medicare Advantage and Medicare Supplement plans through our contracts with such plans. We offer Prime Fitness, a fitness facility access program, through contracts with ~~employers,~~ commercial health plans, employers, and other sponsoring organizations that allow their members to individually purchase the program. We sell our WholeHealth Living program primarily to health plans.

Except for Prime Fitness, our Healthcare segment’s customer contracts generally have initial terms of approximately three years. Some contracts allow the customer to terminate early and/or determine on an annual basis to which of their members they will offer our programs. For Prime Fitness, our contracts with ~~employers,~~ commercial health ~~plan,~~plans, employers, and other sponsoring organizations generally have initial terms of approximately three years, while individuals who purchase the Prime Fitness program through these organizations may cancel at any time (on a monthly basis) after an initial period of one to three months. The significant majority of our Healthcare segment’s customer contracts contain 1 performance obligation - to stand ready to provide access to our network

of fitness locations and fitness programming - which is satisfied over time as services are rendered each month over the contract term. There are generally 0 performance obligations that are unsatisfied at the end of a particular month. There was 0 material revenue recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from performance obligations satisfied in a prior period.

Our fees within the Healthcare segment are variable month to month and are generally billed per member per month (“PMPM”) or billed based on a combination of PMPM and member visits to a network location. We bill PMPM fees by multiplying the contractually negotiated PMPM rate by the number of members eligible for or receiving our services during the month. We bill for member visits approximately one month in arrears once actual member visits are known. Payments from customers are typically due within 30 days of invoice date. When material, we capitalize costs to obtain contracts with customers and amortize them over the expected recovery period. At ~~September~~June 30, 2020 and December 31, 2019, ~~$0.3~~$0.7 million and $0.5 million, respectively, of such costs were capitalized. During the three and six months ended June 30, 2020 and 2019, the amortization of such capitalized costs was immaterial.

Our Healthcare segment’s customer contracts include variable consideration, which is allocated to each distinct month over the contract term based on eligible members and/or member visits each month. The allocated consideration corresponds directly with the value to our customers of our services completed for the month. Under the majority of our Healthcare segment’s contracts, we recognize revenue each month using the practical expedient available under ASC 606-10-55-18, which provides that revenue is recognized in the amount for which we have the right to invoice. ASC 606-10-50-14(b) provides an optional exemption, which we have elected to apply, from disclosing remaining performance obligations when revenue is recognized from the satisfaction of the performance obligation in accordance with the “right to invoice” practical expedient.

Although we evaluate our financial performance and make resource allocation decisions based upon the results of our 2 reportable segments, we believe the following information depicts how our Healthcare segment revenues and cash flows are affected by economic factors.

The following table sets forth Healthcare revenue disaggregated by program. Revenue from our SilverSneakers program is predominantly contracted with Medicare Advantage and Medicare Supplement plans.

(In thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
SilverSneakers	$	124,602	$	121,966	$	370,524	$	365,187	$	49,157	$	122,899	$	170,764	$	245,922
Prime Fitness		30,499		25,374		88,993		75,321		19,047		29,751		51,858		58,494
WholeHealth Living		4,752		4,106		13,783		12,550		4,747		4,467		9,796		9,041
Other(1)		126		21		687		203		8,972		364		9,197		551
	$	159,979	$	151,467	$	473,987	$	453,261	$	81,923	$	157,481	$	241,615	$	314,008

Our Nutrition segment earns revenue from 4 sources: direct to consumer, retail, QVC and other. Revenue is measured based on the consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. As explained in more detail below, revenue is recognized upon satisfaction of the performance obligation by transferring control over a product to a Nutrition segment customer. Direct-mail advertising costs are expensed as incurred. We recognize an asset for the carrying amount of product to be returned and for costs to obtain a contract if the amortization is more than one year in duration. We expense costs to obtain a contract as incurred if the amortization period is less than one year.

We sell pre-packaged foods directly to weight loss program participants primarily through the Internet and telephone (referred to as the direct to consumer channel), through QVC (a television shopping network), and select retailers. Pre-packaged foods include both frozen and non-frozen (ready-to-go), shelf-stable products.

Products sold through the direct to consumer channel, both frozen and non-frozen, may be sold separately (a la carte) or as part of a packaged monthly meal plan for which Nutrition segment customers pay at the point of sale. Products sold through QVC are payable by QVC upon our shipment of the product to the end consumer. For both the direct to consumer channel and QVC, we recognize revenue at a point in time, i.e., at the shipping point. Direct to consumer customers may return unopened ready-to-go Nutrisystem products within 30 days after purchase in order to receive a refund or credit. Frozen Nutrisystem products are refundable only if the order is canceled within 14 days after delivery. South Beach Diet products are not refundable.

Products sold to retailers include both frozen and non-frozen products and are payable by the retailer upon receipt. We recognize revenue at a point in time, i.e., when the retailers take possession of the product. Certain retailers have the right to return unsold products.

We account for the shipment of frozen and non-frozen, ready-to-go products as separate performance obligations. The consideration, including variable consideration for product returns, is allocated between frozen and non-frozen products based on their standalone selling prices. The amount of revenue recognized is adjusted for expected returns, which are estimated based on historical data.

In addition to our pre-packaged foods, we sell prepaid gift cards through a wholesaler that are redeemable through the Internet or telephone. Prepaid gift cards represent grants of rights to goods to be provided in the future to gift card buyers. The wholesaler has the right to return all unsold prepaid gift cards. The wholesaler’s retail selling price of the gift cards is deferred in the balance sheet and recognized as revenue when we have satisfied our performance obligation, i.e., when a gift card holder redeems the gift card with us. We recognize breakage amounts (the estimated amount of unused gift cards) as revenue, in proportion to the actual gift card redemptions exercised by gift card holders in relation to the total expected redemptions of gift cards. We utilize historical experience in estimating the total expected breakage and period over which the gift cards will be redeemed.

Sales and other taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a Nutrition segment customer are excluded from revenue and presented on a net basis. After control over a product has transferred to a Nutrition segment customer, shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in revenue and cost of revenue in the accompanying consolidated statements of operations. Revenue from shipping and handling charges was $6.5 million and $13.0 million for the three and ~~nine~~six months ended ~~September~~June 30, 2020, respectively, and $6.3 million and $8.1 million for the three and six months ended June 30, 2019 ~~was $5.3 million and $13.4 million,~~(from March 8, 2019 forward), respectively.

The following table sets forth Nutrition segment revenue, from March 8, 2019 forward, disaggregated by the source of revenue:

(In thousands)	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,				Six Months Ended June 30,
	2019		2019		2020		2019		2020		2019
Direct to consumer	$	134,581	$	357,677
Nutrisystem direct to consumer					$	165,118	$	155,976	$	320,509	$	203,977
South Beach Diet direct to consumer						8,650		14,464	$	21,414		19,118
Retail		6,311		19,343		3,902		8,728		9,350		13,032
QVC		2,882		6,926		2,901		3,522		7,088		4,044
Other		144		436		104		206		277		292
	$	143,918	$	384,382	$	180,675	$	182,896	$	358,638	$	240,463

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:

(In thousands)	September 30, 2019		June 30, 2020		December 31, 2019
Contract assets	$	205	$	243	$	95
Contract liabilities	$	12,979	$	10,937	$	10,911

The contract assets primarily relate to unbilled accounts receivable and are included as other current assets in the accompanying consolidated balance sheet. The contract liabilities (deferred revenue) primarily relate to sale of prepaid gift cards and unshipped foods, which are deferred until such time as the Company has satisfied its performance obligations.

Significant changes in the contract liabilities (deferred revenue) balance during the period are as follows:

The following table includes estimated revenue from the prepaid gift cards expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the end of the reporting period:

(In thousands)
Remaining 2019	$	3,765
2020		3,556
Remaining 2020			$	1,789
2021		2,026		1,901
2022		664		1,192
2023		622		468
2024		627		297
2025				220
	$	11,260	$	5,867

We apply the practical expedient in subtopic ASC 606-10-50-14 and do not disclose information about remaining performance obligations that have original expected durations of one year or less.

We review the reserves for our Nutrition segment customer returns at each reporting period and adjust them to reflect data available at that time. To estimate reserves for returns, we consider actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, we will adjust the reserve, which will impact the amount of revenue recognized in the period of the adjustment. The provision for estimated returns for the three and ~~nine~~six months ended ~~September~~ June 30, ~~2019~~2020 was ~~$3.9~~$4.1 million and ~~$11.0~~$9.3 million, respectively, and $5.6 million and $7.0 million for the three and six months ended June 30, 2019 (from March 8, 2019 forward), respectively. At June 30, 2020 and December 31, 2019, t~~The~~he reserve for estimated returns incurred but not received and processed was ~~$1.3~~$1.4 million ~~at September 30, 2019~~ and $0.8 million, respectively, and has been included in accrued liabilities in the accompanying consolidated balance ~~sheet~~.

Inventories consist principally of packaged food held in external fulfillment locations. We value inventories at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. We continually assess quantities of inventory on hand to identify excess or obsolete inventory and record a provision for any estimated loss. We estimate the reserve for excess and obsolete inventory primarily on forecasted demand and/or our ability to sell the products, our ability to introduce new products, future production requirements, and changes in consumer behavior. The reserve for excess and obsolete inventory was ~~$1.7~~$2.0 million and $1.8 million at ~~September~~June 30, ~~2019~~2020.and December 31, 2019, respectively.

~~We amortize~~The COVID-19 pandemic has had and is having an adverse impact on the overall economy, resulting in rapidly changing market and economic conditions that have impacted the Company. In March 2020, we experienced a significant decline in the Company’s market capitalization and in the actual and forecasted operating results of our Healthcare segment, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill and indefinite-lived intangible assets ~~subject to amortization on a straight-line basis over~~. Through this evaluation, management concluded that the ~~applicable useful lives~~fair value of ~~the identifiable assets. In connection with our acquisition of Nutrisystem on March 8, 2019, we recorded the following amounts of intangible assets and goodwill. All of the~~ goodwill ~~was recorded~~allocated to the Nutrition ~~segment, and none~~business unit as well as the fair value of the Nutrisystem tradename were below their carrying amounts, and in the first quarter of 2020, we recorded impairment losses of $80.0 million and $119.5 million related to the Nutrisystem tradename and goodwill, respectively (see Note 12). A reconciliation of our goodwill balance is ~~deductible for tax purposes.~~ as follows:

~~In addition, as of September~~At June 30, ~~2019, there was $334.7 million of goodwill~~2020 and ~~$29.0 million of~~December 31, 2019, intangible assets not subject to amortization ~~allocated to the Healthcare segment.~~

~~The change in the carrying amount~~consist of ~~goodwill during the nine months ended~~ tradenames of $509.0 million and $~~September~~ 589.0~~30, 2019 was as follows:~~ million, respectively.

Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-related expenses, including share-based payment arrangements, for personnel engaged in these activities. ~~For~~Media expense was $45.1 million and $122.4 million for the three and ~~nine~~six months ended ~~September~~ June 30, 2020, respectively, and $47.3 million and $67.5 million for the three and six months ended June 30, 2019 ~~media expense was $40.1 million and $107.5 million,~~(from March 8, 2019 forward), respectively. Internet advertising expense is recorded based on either the rate of delivery of a guaranteed number of impressions over the advertising contract term or on the cost per customer acquired, depending upon the terms. All other advertising costs are charged to expense as incurred or the first time the advertising takes place. At ~~September~~ June 30, 2020 and December 31, 2019 ~~$3.2~~, $0.3 million and $5.0 million, respectively, of costs have been prepaid for future advertisements and promotions.

Prior to the acquisition of Nutrisystem, Tivity Health historically classified marketing expenses within cost of revenue and selling, general, and administrative expenses, while Nutrisystem presented marketing expenses in a separate line item. Because marketing expense is material to the combined company and for purposes of comparability, we have reclassified historical Tivity Health marketing expenses to a separate line for the three and nine months ended ~~September~~ ~~30, 2019 and 2018.~~

We currently have 45 types of share-based awards outstanding to our employees and directors: stock options, restricted stock awards, restricted stock units, performance-based stock units, and ~~performance~~ market stock units. ~~All market stock units that were outstanding at the beginning of 2019 were forfeited and are no longer outstanding as of September 30, 2019.~~ We believe that our share-based awards align the interests of our employees and directors with those of our stockholders. ~~Each~~Vesting terms for each of these award types generally ~~vests over three or~~range from one to four years.

~~In March 2019, we granted the following Replacement Awards: (i)~~ ~~approximately 258,000time-vesting restricted stock awards at a fair value of $19.42 per share and (ii) approximately 919,000time-vestingrestricted stock units at a fair value of $19.42 per share.~~ Approximately $9.1 million of the fair value of the Replacement Awards was attributable to pre-combination service and was included in the purchase price of Nutrisystem (see Note 2). Post-combination expense related to the Replacement Awards of approximately $13.7 million is expected to be recognized over the remaining post-combination requisite service period.

We recognize share-based compensation expense for the market stock units if the requisite service period is rendered, even if the market condition is never satisfied. For the three and ~~nine~~six months ended ~~September~~June 30, 2020, we recognized total share-based compensation costs of $2.9 million and $3.7 million, respectively.For the three and six months ended June 30, 2019, we recognized total share-based compensation costs of ~~$6.0~~$6.9 million and ~~$15.3~~$9.3 million, respectively, including~~$0.6~~ $0.5 million and $0.6 million, respectively, recorded to restructuring and related charges for the nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, we recognized total share-based compensation costs of $1.7 million and $4.9 million, respectively.charges. We account for forfeitures as they occur.

~~A summary of our stock options as of September 30, 2019 and the changes during the nine months then ended is presented below:~~

~~The follow~~ing~~table~~show~~s a sum~~m~~ary ofour r~~e~~str~~i~~cted st~~oc~~k awards~~ a~~s of September 30, 2019,~~as~~well~~as ~~activit~~y ~~durin~~g the~~nine~~ ~~months then ended:~~

~~The follow~~ing~~table~~show~~s a sum~~m~~ary ofour r~~e~~str~~i~~cted st~~oc~~k units~~ a~~s of September 30, 2019,~~as~~well~~as ~~activit~~y ~~durin~~g the~~nine~~ ~~months then ended:~~

~~The follow~~ing~~table~~show~~s a sum~~m~~ary ofourperformance stock unitsas of September 30, 2019,~~ as ~~wel~~las ~~activit~~y ~~durin~~g the~~nine~~ ~~months then ended:~~

~~The follow~~ing~~table~~show~~s a sum~~m~~ary ofourmarket stock unitsas of September 30, 2019,~~ as ~~wel~~las ~~activit~~y ~~durin~~g the~~nine~~ ~~months then ended:~~

For the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we had an effective income tax rate of ~~25.1%~~17.6% and ~~26.3%~~30.9%, respectively.~~respectively. The decrease in~~ During the second quarter of 2020, our effective income tax rate iswas lower than our statutory rate, primarily due to a ~~net favorable impact resulting from adjustments of prior estimates.~~

~~For~~change in the ~~nine months ended September 30, 2019 and September 30, 2018, we had an~~estimated annual effective income tax ~~rate from continuing operations~~rate. During the second quarter of ~~33.4% and 25.6%,~~ ~~respectively. In~~ 2019, we had ~~additional~~ nondeductible expenses related to the ~~Merger~~acquisition of Nutrisystem that caused an increase in our effective income tax ~~rate for~~rate.

For the ~~nine~~six months ended ~~September~~ June 30, 2020 and 2019, we had an effective tax benefit rate of 5.1% and an effective income tax rate of 37.6%, respectively. For the six months ended June 30, 2020, our effective tax benefit rate was lower than our statutory benefit rate primarily due to the nondeductible goodwill impairment loss of $119.5 million recorded during the first quarter. For the six months ended June 30, 2019, ~~compared~~our effective income tax rate increased due to nondeductible expenses related to the ~~prior year. In addition, upon Closing~~acquisition of Nutrisystem as well as two adjustments related to the ~~Merger,~~ acquisition that collectively increased our income tax expense for such period by approximately $2.7 million: (i)we evaluated the realizability of beginning-of-the-year deferred tax assets and increased the valuation allowance on deferred tax assets related to state net operating loss carryforwards by $1.8 ~~million. We also~~million, and (ii) we recorded a $0.9 million reduction in deferred tax assets related to state income tax credits. ~~These two adjustments increased our income tax expense for the nine months ended~~ ~~September~~ ~~30, 2019 by approximately $2.7 million.~~

We file income tax returns in the U.S. Federal jurisdiction and in various state and foreign jurisdictions. Tax years remaining subject to examination in the U.S. Federal jurisdiction include 2016 to present.

~~On January 1, 2019, we adopted ASC 842 using the modified retrospective approach. Therefore, the~~ comparative information for periods ended prior to January 1, 2019 was not restated. Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet. We recognize lease expense for these short-term leases on a straight-line basis over the lease term. With the exception of one finance lease related to office equipment, all of our leases are classified as operating leases. We maintain lease agreements principally for our office spaces and certain equipment. In addition, certain of our contracts, such as those with our fulfillment vendor related to our warehouse space or contracts with certain equipment vendors, contain embedded leases. We maintain 3 sublease agreements with respect to two of our office locations, each of which continues through the initial term of our master lease agreement. Such sublease income and payments, while they reduce our rent expense, are not considered in the value of the right-of-use asset or lease liability. With the exception of two finance leases related to a network server and office equipment, all of our leases are classified as operating leases. In the aggregate, our leases generally have remaining lease terms of one to ~~six~~five years, some of which include options to extend the lease for additional periods. Such extension options were not considered in the value of the right-of-use asset or lease liability since it is not probable that we will exercise the options to extend. If applicable, allocations among lease and nonlease components would be achieved ~~using relative standalone selling prices.~~

Upon adoption of ASC 842, we determined our estimated discount rate for existing leases as of January 1, 2019 based on the incremental borrowing rate that most closely aligned with the remaining lease term and payment schedule, as provided by our financial institution. The discount rate for leases in the Nutrition segment was estimated as of the Closing date of the Merger.

~~The following table shows the right-of-use assets and lease liabilities recorded on the balance sheet:~~

~~The following provides information related to~~expense for the ~~lease term~~three and ~~discount rate as of September~~six months ended June 30, 2020 and 2019:

~~As of~~ ~~September~~ ~~30, 2019, maturities of lease liabilities~~ ~~for each of the next five years and thereafter~~ ~~were as follows.~~

~~(1) No new leases were entered into during the nine months ended~~ ~~September~~ 30, 2019. Amounts shown are due to the adoption of ASC 842 and one lease modification during the three months ended September 30, 2019 that resulted in a noncash remeasurement of the related right-of-use asset and operating lease liability. Amount shown for the three months ended September 30, 2019 reflects the change in balance resulting from such lease modification. Amounts shown for the nine months ended September 30, 2019 reflect balances as of January 1, 2019 for the Healthcare segment (adjusted for lease modification) and as of March 8, 2019 for the Nutrition segment (i.e., the date of our acquisition of Nutrisystem).

As of December 31, 2018, future minimum lease payments, net of total cash receipts from subleases of $23.7 million, under all non-cancelable operating leases for each of the next five years and thereafter were as follows. As of December 31, 2018, future minimum lease payments under capital leases were not material.

The Company's debt, net of unamortized deferred loan costs and original issue discount, consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

In connection with the consummation of the Merger, on March 8, 2019, we entered into a new Credit and Guaranty Agreement (the “Credit Agreement”) with a group of lenders, Credit Suisse AG, Cayman Islands Branch, as general administrative agent, term facility agent and collateral agent, and SunTrust Bank, as revolving facility agent and swing line lender (“SunTrust”). The Credit Agreement replaced our prior Revolving Credit and Term Loan Agreement, dated April 21, 2017 (the “Prior Credit Agreement”), with a group of lenders and SunTrust, as administrative agent.swingline lender. The Credit Agreement provides us with (i) a $350.0 million term loan A facility (“Term Loan A”), (ii) an $830.0 million term loan B facility (“Term Loan B” and, together with Term Loan A, the “Term Loans”), (iii) a $125.0 million revolving credit facility that includes a $35.0 million sublimit for swingline loans and a $50.0 million sublimit for letters of credit (the “Revolving Credit Facility”; Term Loan A, Term Loan B and the Revolving Credit Facility are sometimes herein referred to collectively as the “Credit Facilities”), and (iv) uncommitted incremental accordion facilities in an aggregate amount at any date equal to the greater of $125.0 million or 50% of our consolidated EBITDA for the then-preceding four fiscal quarters, plus additional amounts based on, among other things, satisfaction of certain financial ratio requirements.

~~We used~~ As of June 30, 2020, outstanding debt under the ~~proceeds of the Term Loans, borrowings~~Credit Agreement was $1,012 million, and availability under the Revolving Credit Facility ~~and cash on hand to pay the Merger Consideration, to repay all of the outstanding indebtedness~~totaled $124.5 million as calculated under the Prior Credit Agreement and all outstanding indebtedness of Nutrisystem under its credit agreement, and to pay transaction costs and expenses. Proceeds of the Revolving Credit Facility also may be used for general corporate purposes of the Company and its subsidiaries.most restrictive covenant.

Agreement contains provisions that, beginning with fiscal 2019, may require annual excess cash flow (as defined in the Credit Agreement and generally designed to equal cash generated by our business in excess of cash used in the business) to be applied towards the Term Loans. We are required to make prepayments on the Term Loans equal to our excess cash flow for a given fiscal year multiplied by the following excess cash flow percentages (such resulting payment an “Excess Cash Flow Payment”) based on our ~~net leverage ratio~~Net Leverage Ratio (as defined ~~in the Credit Agreement)~~below) on the last day of such fiscal year: (a) 75% if the ~~net leverage ratio~~Net Leverage Ratio is greater than 3.75:1, (b) 50% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 3.75:1 but greater than 3.25:1 (c) 25% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 3.25:1 but greater than 2.75:1, and (d) 0% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 2.75:1. Any such potential mandatory prepayments are reduced by voluntary prepayments. We were not required to make an Excess Cash Flow Payment for fiscal 2019.

The Credit Agreement contains a financial covenant that requires us to maintain maximum ratios or levels of consolidated total net debt to consolidated adjusted EBITDA, calculated as provided in the Credit Agreement (the “Net Leverage Ratio”), of 5.75:1.00 for all test dates occurring on or after December 31, 2019 but prior to December 31, 2020, 5.25:1.00 for all test dates occurring on or after December 31, 2020 but prior to December 31, 2021, and 4.75:1.00 for all test dates occurring on or after December 31, 2021. As of June 30, 2020, we were in compliance with all of the covenant requirements of the Credit Agreement, and our Net Leverage Ratio was equal to 4.08.

Based on our current assumptions with respect to the COVID-19 pandemic, including, among other things, the duration of the temporary closures of our fitness partner locations and the average monthly total participation levels of our members after such locations reopen, we currently believe we will be in compliance with the Net Leverage Ratio covenant over the next 12 months; however, given the significant uncertainty relating to the potential impacts of the COVID-19 pandemic on our business going forward, there are potential scenarios under which we could fail to comply with the Net Leverage Ratio covenant. Our failure to comply with the Net Leverage Ratio covenant would result in an event of default that, if not waived, could have a material adverse effect on our financial condition, results of operations or debt service capability. We will continue to monitor our projected ability to comply with all covenants under the Credit Agreement, including the Net Leverage Ratio, which could include seeking an amendment to or waiver of the Net Leverage Ratio covenant if necessary.

Borrowings under the Credit Agreement bear interest at variable rates based on a margin or spread in excess of either (1) one-month, two-month, three-month or six-month LIBOR (or, with the approval of all lenders holding the particular class of loans, 12-month LIBOR), which may not be less than 0, or (2) the greatest of (a) the prime lending rate of the agent bank for the particular facility, (b) the federal funds rate plus 0.50%, and (c) one-month LIBOR plus 1.00% (the “Base Rate”), as selected by the Company. The LIBOR margin for Term Loan A loans is 4.25%, the LIBOR margin for Term Loan B loans is 5.25% and the LIBOR margin for revolving loans varies between 3.75% and 4.25%, depending on our total ~~net leverage ratio.~~Net Leverage Ratio. The Base Rate margin for Term Loan A loans is 3.25%, the Base Rate margin for Term Loan B loans is 4.25% and the Base Rate margin for revolving loans varies between 2.75% and 3.25%, depending on our total ~~net leverage ratio.~~Net Leverage Ratio. In May 2019, we entered into 8 amortizing interest rate swap agreements, each of which matures in May 2024. Under these agreements, we receive a variable rate of interest based on LIBOR, and we pay a fixed rate of interest equal to approximately 2.2% plus a spread, as described in the preceding sentences. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swap agreements had current notional amounts totaling ~~$900.0~~$800.0 million.

The Credit Agreement also provides for annual commitment fees ranging between 0.250% and 0.500% of the unused commitments under the Revolving Credit Facility, depending on our total ~~net leverage ratio,~~Net Leverage Ratio, and annual letter of credit fees on the daily outstanding availability under outstanding letters of credit at the applicable LIBOR margin for the Revolving Credit Facility, depending on our total ~~net leverage ratio.~~Net Leverage Ratio.

Extensions of credit under the Credit Agreement are secured by guarantees from substantially all of the Company’s active material domestic subsidiaries and by security interests in substantially all of Company’s and such subsidiaries’ assets.

The Credit Agreement contains a financial covenant that requires us to maintain specified maximum ratios or levels of consolidated total net debt to EBITDA, calculated as provided in the Credit Agreement. The Credit Agreement also contains various other affirmative and negative covenants customary for financings of this type that, subject to certain exceptions, impose restrictions and limitations on the Company and certain of the Company’s subsidiaries with respect to, among other things, indebtedness; liens; negative pledges; restricted payments (including dividends, distributions, buybacks, redemptions, repurchases with respect to equity interests, and payments, redemptions, retirements, purchases, acquisitions, defeasance, exchange, conversion, cancellation or termination with respect to junior lien, subordinated or unsecured debt); restrictions on subsidiary distributions; loans, advances, guarantees, acquisitions and other investments; mergers and other fundamental changes; sales and other dispositions of assets (including equity interests in subsidiaries); sale/leaseback transactions; transactions with affiliates; conduct of business; amendments and waivers of organizational documents and material junior debt agreements; and changes to fiscal year.

In July 2013, we sold separate privately negotiated warrants (the “Warrants”) initially relating, in the aggregate, to approximately 7.7 million shares of our Common Stock. The Warrants are call options with an initial strike price of approximately $25.95 per share. Beginning on October 1, 2018, the Warrants were subject to automatic exercise on a pro rata basis each trading day continuing for a period of 160 trading days (i.e., approximately 48,000 warrants were subject to automatic exercise on each trading day), which ended in May 2019. Therefore, as of September 30, 2019, there are 0 remaining Warrants outstanding. The Warrants were net share settled by our issuing a number of shares of our Common Stock per Warrant with a value corresponding to the excess of the market price per share of our Common Stock (as measured on each warrant exercise date under the terms of the Warrants) over the applicable strike price of the Warrants. If such market price per share was less than the applicable strike price of the Warrants on any given exercise date, then the warrants subject to automatic exercise on such exercise date were not exercised but instead expired. The Warrants met the definition of derivatives under

the guidance in ASC Topic 815; however, because these instruments were determined to be indexed to our own stock and met the criteria for equity classification under ASC Topic 815, the Warrants were accounted for as an adjustment to our additional paid-in-capital. During the nine months ended September 30, 2019, we did 0t issue any shares of Common Stock related to the automatic exercise of the Warrants due to the market price per share of our Common Stock being less than the applicable strike price of the Warrants on each exercise date during such time period.

When the market price per share of our Common Stock exceeded the strike price of the Warrants, the Warrants had a dilutive effect on net income per share, and the “treasury stock” method was used in calculating the dilutive effect on earnings per share. See Note 16 for additional information on such dilutive effect.

Shareholder Lawsuits: Weiner ~~Denham, Allen,~~Lawsuit, Consolidated Derivative Lawsuit, and Witmer ~~Lawsuits~~Lawsuit

On November 6, 2017, United Healthcare issued a press release announcing expansion of its fitness benefits (“United Press Release”), and the market price of the Company's shares of common stock, par value $.001 per

share (“Common ~~Stock~~Stock”) dropped on that same day. In connection with the United Press Release, 4 lawsuits were filed against the Company. As further described below, 3 of the 4four lawsuits have been dismissed. We are currently not able to predict the probable outcome of the remaining matter or to reasonably estimate a range of potential loss, if any. We intend to vigorously defend ourselves against the remaining complaint.

On November 20, 2017, Eric Weiner, claiming to be a stockholder of the Company, filed a complaint on behalf of stockholders who purchased ~~the Company’s~~ Common Stock between February 24, 2017 and November 3, 2017 (“Weiner Lawsuit”). The Weiner Lawsuit was filed as a class action in the U.S. District Court for the Middle District of Tennessee, naming as defendants the Company, the Company's chief executive officer, chief financial officer and a former executive who served as both chief accounting officer and interim chief financial officer. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated under the Exchange Act in making false and misleading statements and omissions related to the United Press Release. The complaint seeks monetary damages on behalf of the purported class. On April 3, 2018, the Court entered an order appointing the Oklahoma Firefighters Pension and Retirement System as lead plaintiff, designated counsel for the lead plaintiff, and established certain deadlines for the case. On June 4, 2018, plaintiff filed a first amended complaint. The Court denied the Company’s Motion to Dismiss on March 18, 2019 and the Company’s Motion to Reconsider on May 22, 2019. On January 29, 2020, the Court granted lead plaintiff’s motion to certify the class. On July 23, 2020, the United States Court of Appeals for the Sixth Circuit denied the Company’s application for permission to appeal the class certification ruling. The case is currently set for trial on May 18, ~~2021.~~2021.

On January 26, 2018 ~~Charles Denham,~~and August 24, 2018, individuals claiming to be ~~a stockholder~~stockholders of the Company filed ~~a purported~~ shareholder derivative ~~action,~~actions, on behalf of the Company, in the U.S. District Court for the Middle District of Tennessee, naming the Company as a nominal defendant and certain current and former executives and directors as defendants. On October 15, 2018, the ~~Company's chief executive officer, chief financial officer,~~two complaints were consolidated (the “Consolidated Derivative Lawsuit”). On May 15, 2019, a ~~former executive who served as both chief accounting officer~~consolidated amended complaint was filed. The consolidated amended complaint asserts claims for violation of Section 10(b), 14(a), and ~~interim chief financial officer, current directors and a former director~~29(b) of the ~~Company, as defendants (“Denham Lawsuit”). The complaint asserted claims for~~Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment, largely tracking allegations in the Weiner Lawsuit. The complaint further alleged that certain defendants engaged in insider trading. The plaintiff sought monetary damages on behalf of the Company, certain corporate governance and internal procedural reforms, and other equitable relief~~. On October 22, 2019, the Denham Lawsuit was dismissed with prejudice.~~

On August 24, 2018, Andrew H. Allen, claiming to be a stockholder of the Company, filed a purported shareholder derivative action, on behalf of the Company, in the U.S. District Court for the Middle District of Tennessee, naming the Company as a nominal defendant and the Company’s chief executive officer, chief financial officer, a former executive who served as both chief accounting officer and interim chief financial officer, together with nine current or former directors, as defendants (“Allen Lawsuit”). The complaint asserted claims for breach of fiduciary duty and violations of the Securities Act of 1933, as amended (“Securities Act”) and the Exchange Act against all individual defendants, largely tracking allegations in the Weiner Lawsuit and Denham Lawsuit, and breach of fiduciary duty for insider trading against a former executive who served as both chief accounting officer and interim chief financial officer and one of the directors of the Company. The plaintiff soughtenrichment. Plaintiffs seek to recover damages on behalf of the Company, certain corporate governance and internal procedural reforms, and other equitable relief, including restitution from the two defendants alleged to have engaged in insider trading from all unlawfully obtained profits. On October 15, 2018, the Allen Lawsuit and the Denham Lawsuit were consolidated by stipulation.relief. On June 14, 2019, the defendants filed a Motion to Dismiss all claims and the plaintiffs filed their opposition to the Motion to Dismiss on July 17, 2019. On October 22, 2019, the ~~Allen~~Consolidated Derivative Lawsuit was dismissed with prejudice. On November 20, 2019, plaintiffs filed a notice of appeal with the United States Circuit Court for the Sixth Circuit. The parties have entered into a Memorandum of Understanding (“MOU”) to resolve the Consolidated Derivative Lawsuit, and on May 19, 2020, the case was remanded to the District Court to review for approval a forthcoming stipulation of settlement based on the terms set forth in the MOU.

On ~~March~~February 25, ~~2019, Colleen Witmer,~~2020, Robert Strougo, claiming to be a stockholder of the Company, filed a ~~purported shareholder derivative~~complaint on behalf of stockholders who purchased Common Stock between March 8, 2019 and February 19, 2020 (the "Strougo Lawsuit"). The Strougo Lawsuit was filed as a class action in the U.S. District Court for the Middle District of Tennessee, naming the Company, the Company's chief financial officer and former chief executive officer as defendants. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act in making false and misleading statements and omissions related to the performance of the Nutrisystem business that the Company acquired on March 8, 2019. The complaint seeks monetary damages on behalf of the purported class. Three parties have filed a motion seeking to be appointed lead plaintiff and counsel, but the Court has not ruled on those motions. Given the uncertainty of litigation and the preliminary stage of the case, we are currently not able to predict the probable outcome of the matter or to reasonably estimate a range of potential loss, if any.

On April 9, 2020, John Cobb, claiming to be a stockholder of the Company, filed a derivative complaint in the ~~Chancery~~United States District Court for ~~Davidson County,~~the Middle District of Tennessee naming the Company as a nominal defendant and certain directors and the ~~Company's~~Company’s former chief executive officer and current chief financial officer ~~a former executive who served~~ as ~~both chief accounting officer and interim chief financial officer, chief legal and administrative officer, certain current directors, and two former directors of the Company, as defendants.~~defendants (the “Cobb Lawsuit”). The complaint asserted claims for breach of Section 14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets, failure of internal controls, and unjust enrichment, largely tracking the factual allegations in the ~~Denham~~Strougo Lawsuit. The ~~complaint further alleged that certain defendants engaged in insider trading. The~~ plaintiff ~~sought~~seeks monetary damages on behalf of the Company, restitution, and certain corporate governance and internal procedural ~~reforms, and other equitable relief. With the agreement of the parties, the Tennessee Supreme Court transferred the case to the Business Court Pilot Project.~~reforms. On June ~~4, 2019,~~9, 2020, the ~~Company, as nominal defendant, filed~~United States Magistrate Judge approved the parties’ stipulation to a ~~motion to dismiss or~~ stay the case pending the resolution of defendants’ anticipated motion to dismiss in the ~~consolidated Allen~~Strougo case. Given the uncertainty of litigation and ~~Denham Lawsuits. On October 24, 2019,~~ the ~~plaintiff dismissed~~preliminary stage of the case, ~~without prejudice.~~ we are currently not able to predict the probable outcome of the matter or to reasonably estimate a range of potential loss, if any.

In July 2020, three putative derivative complaints were filed in the United States District Court for the District of Delaware by the following individuals claiming to be stockholders of the Company: Patrick Yerby, Thomas R. Conte, Melvyn Klein, and Mark Ridendour (the “Delaware Derivative Lawsuits”). The complaints largely track the allegations, named defendants, asserted claims, and requested relief of the Cobb Lawsuit. Once the Delaware Derivative Lawsuits are consolidated by the District Court, the Company intends to seek a stay similar to that entered in the Cobb Lawsuit.

Given the uncertainty of litigation and the preliminary stage of the case, we are not currently able to predict the probable outcome of the matter or to reasonably estimate a range of potential loss, if any. We intend to vigorously defend ourselves against the Strougo Lawsuit, Cobb Lawsuit, and Delaware Derivative Lawsuit.

On May 31, 2019, Pacific Packaging Concepts, Inc. (“Pacific Packaging”) filed a complaint in the U.S. District Court for the Central District of California, Western Division, naming as defendants two subsidiaries of the Company; Nutrisystem, Inc. and Nutri/System IPHC, Inc. ~~(“Pacific Packaging Lawsuit”).~~ In its complaint, Pacific Packaging alleged that the defendants’ use of Pacific Packaging’s federally registered trademark, Fresh Start, in advertisements for its weight management program and shakes constitutes federal trademark infringement, counterfeit trademark infringement, false designation of origin, federal trademark dilution, unfair competition, false advertising, common law unfair competition, and common law trademark infringement. The complaint seeks injunctive relief and monetary damages in an unspecified amount. On August 29, 2019, the defendants filed their Answer to Complaint. Given the uncertainty of litigation and the preliminary stage of the case, we are currently not able to predict the probable outcome of the matter or to reasonably estimate a range of potential loss, if any. We intend to vigorously defend ourselves against this complaint.

Additionally, from time to time, we are subject to contractual disputes, claims and legal proceedings that arise in the ordinary course of our business. Some of the legal proceedings pending against us as of the date of this report are expected to be covered by insurance policies. As these matters are subject to inherent uncertainties, our view of these matters may change in the future. We expense legal costs as ~~incurred.~~incurred.

We account for certain assets and liabilities at fair value. Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

The following table presents our assets and liabilities measured at fair value on a recurring basis at ~~September~~June 30, ~~2019. There were 0 assets~~2020 and ~~liabilitiesmeasuredat fair valueon arec~~urri~~ng b~~a~~sis at~~ December 31, ~~2018.~~2019.

			Level 2
(In thousands)			June 30, 2020		December 31, 2019
September 30, 2019	Level 2

Liabilities:
Interest rate swap agreements	$	21,419	$	44,407	$	16,238

The fair values of interest rate swap agreements are primarily determined based on the present value of future cash flows using internal models and third-party pricing services with observable inputs, including interest rates, yield curves and applicable credit spreads.

We measure certain assets at fair value on a nonrecurring basis in the fourth quarter of each year, including the following:

Each of these assets above is classified as Level 3 within the fair value hierarchy. The COVID-19 pandemic has had and is having an adverse impact on the overall economy, resulting in rapidly changing market and economic conditions that have impacted the Company. In March 2020, we experienced a significant decline in the Company’s market capitalization and in the actual and forecasted operating results of our Healthcare segment, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill (for each of our reporting units) and indefinite-lived intangible assets (which consist of the Nutrisystem tradename and the SilverSneakers tradename).

We estimated the fair value of each reporting unit using a combination of a discounted cash flow model and a market-based approach, and we reconciled the aggregate fair value of our reporting units to our consolidated market capitalization. Estimating fair value requires significant judgments, including management’s estimate of future cash flows of each reporting unit (which is dependent on internal forecasts of projected income), estimation of the long-term growth rates of future revenues for our reporting units, the terminal growth rate of revenue, the tax rate, and determination of the weighted average cost of capital, as well as relevant comparable company revenue and earnings multiples and market participant acquisition premium for the market-based approaches. Changes in these estimates and assumptions could materially affect the estimate of fair value and goodwill impairment for each reporting unit. There is significant uncertainty relating to the potential future impacts of the COVID-19 pandemic on our business and the overall market.

Certain significant inputs used in the estimation of fair value were adversely impacted by the changing market and economic conditions discussed above, most notably the weighted average cost of capital, resulting in a lower estimated fair value for each of our reporting units. Before we performed the impairment analysis during the first quarter, the estimated fair value of the Nutrition reporting unit was equal to its carrying value due to an impairment loss we recorded in the fourth quarter of 2019. Because there was no excess of estimated fair value over carrying value (“headroom”) for the Nutrition reporting unit at the beginning of 2020, the decrease in the estimated fair value of the Nutrition reporting unit during the first quarter of 2020 resulted in an impairment of the carrying value of

goodwill for the Nutrition reporting unit, and we recorded a $119.5 million goodwill impairment loss. None of the impaired goodwill is deductible for tax purposes, and there is no cash tax benefit related to the impairment. For the Healthcare reporting unit, the fair value of the reporting unit exceeded its carrying amount, and we determined that the carrying value of goodwill was not impaired.

Also during the first quarter of 2020, we estimated the fair value of indefinite-lived intangible assets, which consisted of 2 tradenames (the Nutrisystem tradename and the SilverSneakers tradename), using the relief-from-royalty method, which required significant assumptions such as the long-term growth rate of future revenues, the royalty rate for such revenue, and a discount rate. Changes in these estimates and assumptions could materially affect the estimate of fair value for the tradenames. Similar to the goodwill impairment analysis described above, the discount rate used in the estimation of fair value of the tradenames was adversely impacted by the changing market and economic conditions discussed above, resulting in a lower estimated fair value for each tradename.

Due to an impairment loss recorded in the fourth quarter of 2019 related to the Nutrisystem tradename and goodwill, the estimated fair value of the Nutrisystem tradename was equal to its carrying value at the beginning of 2020. The decrease in the estimated fair value of the Nutrisystem tradename during the first quarter of 2020 resulted in an impairment of tradename, and we recorded an $80.0 million impairment loss related to the Nutrisystem tradename. None of this impairment loss is deductible for tax purposes, and there is no cash tax benefit related to the impairment. Based on our impairment assessment of the SilverSneakers tradename, we determined that the carrying value of the tradename was not impaired as of the measurement date.

There were 0 impairment triggers during the second quarter of 2020 related to our goodwill or indefinite-lived intangible assets.

The estimated fair value of each class of financial instruments at ~~September~~June 30, ~~2019~~2020 was as follows:

Cash and cash equivalents – The carrying amount of $~~6.9~~60.3 million approximates fair value due to the short maturity of those instruments (less than three months).

Debt – The estimated fair value of outstanding borrowings under the Credit Agreement, which includes term loan facilities and a revolving credit facility (see Note ~~11)~~10), is determined based on the fair value hierarchy as discussed above.

The Term Loans are actively traded and therefore are classified as Level 1 valuations. The estimated fair value is based on quotes as of~~the last quoted price of the Term Loans through September~~ June 30, ~~2019~~2020 from dealers who stand ready and willing to transact at those prices. The Revolving Credit Facility is not actively traded and therefore is classified as a Level 2 valuation based on the market for similar instruments. The estimated fair value and carrying amount of outstanding borrowings under the Term Loans at ~~September~~ June 30, 2020~~30, 2019~~ were ~~$1,068~~$921.2 million and ~~$1,075~~$1,012.3 million, respectively. ~~The estimated fair value and carrying amount of~~There were 0 outstanding borrowings under the Revolving Credit Facility at ~~September~~ June 30, 2020.~~30, 2019 were $8.8 million and $9.0 million, respectively.~~

We use derivative instruments to manage differences in the amount, timing, and duration of our known or expected cash payments related to our outstanding debt (i.e., interest rate risk). These derivatives are designated and qualify as a hedge of the exposure to variability in expected future cash flows and are therefore considered cash flow hedges. We account for derivatives in accordance with FASB ASC Topic 815, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet at fair value as either an asset or liability. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. We classify cash flows from settlement of our cash flow hedges in the same category as the cash flows from the related hedged items, generally within the operating activities in the consolidated statements of cash flows. We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as hedges.

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. The counterparties to the interest rate swap agreements expose us to credit risk in the event of nonperformance by such counterparties. However, at ~~September~~June 30, ~~2019,~~2020, we do not anticipate nonperformance by these counterparties. Our interest rate swap agreements with each of the counterparties contain a provision whereby if we either default or are capable of being declared in default on any of our indebtedness, whether or not such default results in repayment of the indebtedness being accelerated by the lender, then we could also be declared in default on our derivative obligations.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In May 2019, we entered into 8 amortizing interest rate swap agreements, each of which matures in May 2024. Under these agreements, we receive a variable rate of interest based on LIBOR, and we pay a fixed rate of interest equal to approximately 2.2% plus a spread (see Note ~~11)~~10). As of ~~September~~June 30, ~~2019,~~2020, these interest rate swap agreements had current notional amounts totaling ~~$900.0~~$800.0 million.

We record derivatives that are designated and qualify as cash flow hedges at estimated fair value in the consolidated balance sheet, with the related gains and losses recorded in accumulated other comprehensive income or loss ("accumulated OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as we make interest payments on our variable-rate debt. As of ~~September~~June 30, ~~2019,~~2020, we expect to reclassify ~~$4.8~~$15.8 million from accumulated OCI as an increase to interest expense within the next 12 months due to the scheduled payment of interest associated with our debt.

The estimated gross fair values of derivative instruments and their classification on the consolidated balance sheet at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:

(In thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Liabilities:
Derivatives designated as hedging instruments:
Current portion of long-term liabilities	$	4,675	$	—	$	15,664	$	4,947
Other long-term liabilities		16,744		—		28,743		11,291
	$	21,419	$	—	$	44,407	$	16,238

The following table presents the effect of cash flow hedge accounting on accumulated OCI as of ~~September~~ June 30~~30, 2019~~, 2020 and ~~September~~ ~~30, 2018:~~2019:

~~During the first quarter of 2019,~~ we began a reorganization primarily related to integrating the Healthcare and Nutrition segments and streamlining our corporate and operations support (the "2019 Restructuring Plan"). For the three months ended ~~September~~ ~~30, 2019, we incurred restructuring charges of $0.3 million related to the 2019 Restructuring Plan, almost all of whichrelated to the Nutrition segment.No material restructuring charges related to the 2019 Restructuring Plan were incurred in the Healthcare segment for the three months ended September 30, 2019. As of and for the nine months ended~~ ~~September~~ 30, 2019, we have incurred cumulative restructuring charges of $4.2 million related to the 2019 Restructuring Plan, of which $1.8 million related to the Healthcare segment and $2.4 million related to the Nutrition segment. These expenses consist entirely of severance and other employee-related costs. The 2019 Restructuring Plan is expected to result in total annualized savings beginning in 2020 of approximately $10.3 million, with $5.9 million relating to the Healthcare segment and $4.4 million relating to the Nutrition segment.

~~The following table shows the activity in accrued restructuring and related charges for the nine months ended~~ ~~September~~ ~~30, 2019 related to the 2019 Restructuring Plan:~~

~~Beginning in March 2019, we~~We use the two-class method to calculate earnings per share ~~(“EPS”)~~ as the unvested restricted stock awards outstanding under our equity incentive plan are participating shares with nonforfeitable rights to dividends. Under the two-class method, we compute earnings per share of Common Stock by dividing the sum of distributed earnings to common stockholders (currently not applicable as we do not pay dividends) and undistributed earnings allocated to common stockholders by the weighted average number of outstanding shares of Common Stock for the period. In applying the two-class method, we allocate undistributed earnings to both shares of Common Stock and participating securities based on the number of weighted average shares outstanding during the period. Any undistributed losses are not allocated to unvested restricted stock as the restricted stockholders are not obligated to share in the losses. Following is a reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

(In thousands except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Numerator:

Income from continuing operations
   - numerator for earnings per share

$
13,920

$
25,357

$
36,271

$
69,375

Income from discontinued operations
   - numerator for earnings per share

—

—

—

901

Net income allocated to unvested restricted stock

(63
)

—

(140
)

—

Net income allocated to shares of Common Stock

$
13,857

$
25,357

$
36,131

$
70,276

��

Denominator:

Shares used for basic income per share

47,923

40,010

45,996

39,898

Effect of dilutive stock options and
   restricted stock units outstanding:

Non-qualified stock options

64

242

94

277

Restricted stock units

597

263

495

333

Market stock units

—

468

—

497

Warrants related to Cash Convertible Notes

—

1,844

—

2,229

Shares used for diluted income per share

48,584

42,827

46,585

43,234

Earnings per share - basic:

Continuing operations

$
0.29

$
0.63

$
0.79

$
1.74

Discontinued operations

$
—

$
—

$
—

$
0.02

Net income

$
0.29

$
0.63

$
0.79

$
1.76

Earnings per share - diluted:

Continuing operations

$
0.29

$
0.59

$
0.78

$
1.60

Discontinued operations

$
—

$
—

$
—

$
0.02

Net income

$
0.29

$
0.59

$
0.78

$
1.63

Dilutive securities outstanding not included in the
   computation of earnings per share
   because their effect is anti-dilutive:

Non-qualified stock options

70

81

74

47

Restricted stock units

276

47

207

34

Restricted stock awards

156

—

94

—

(In thousands except per share data)	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Numerator:
Net income (loss)	$	28,511		$	18,137		$	(169,595	)	$	22,351
Net income allocated to unvested restricted stock		(20	)		(93	)		—			(77	)
Net income (loss) allocated to shares of Common Stock	$	28,491		$	18,044		$	(169,595	)	$	22,274

Denominator:
Shares used for basic income (loss) per share		48,711			47,790			48,662			45,165
Effect of dilutive stock options and restricted stock units outstanding:
Non-qualified stock options		8			93			—			110
Restricted stock units		75			578			—			444
Shares used for diluted income (loss) per share ⁽¹⁾		48,794			48,461			48,662			45,719

Earnings (loss) per share:
Basic	$	0.59		$	0.38		$	(3.49	)	$	0.49
Diluted ⁽¹⁾	$	0.58		$	0.37		$	(3.49	)	$	0.49

Dilutive securities outstanding not included in the computation of earnings per share because their effect is anti-dilutive:
Non-qualified stock options		235			71			202			76
Restricted stock units		750			288			544			172
Restricted stock awards		32			128			35			64
Performance-based stock units		95			—			64			—
Market-based stock units		49			—			25			—

Market stock units and performance stock units outstanding are considered contingently issuable shares, and certain of these stock units were excluded from the calculations of diluted earnings per share for all periods presented as the performance criteria had not been met as of the end of the reporting periods.

The following tables summarize the changes in accumulated OCI, net of tax, for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

The following table presents details about reclassifications out of accumulated OCI for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

(In thousands)	Nine Months Ended September 30, 2019			Statement of Operations Classification	Six Months Ended June, 2020			Statement of Operations Classification
Interest rate swaps	$	(200	)	Interest expense	$	4,603		Interest expense
		50		Income tax expense		(1,175	)	Income tax expense
	$	(150	)	Net of tax	$	3,428		Net of tax

Following the acquisition of Nutrisystem in March 2019, we organize and manage our operations within 2 reportable segments, based on the types of products and services they offer: Healthcare and Nutrition. The Healthcare segment ~~consists of~~derives its revenues from SilverSneakerssenior fitness, Prime Fitness and WholeHealth Living. The Nutrition segment provides weight management products and ~~services.~~services and derives its revenues from Nutrisystem and South Beach Diet products. Prior to the acquisition of Nutrisystem, we had 1 reportable segment.

Our chief operating decision maker evaluates performance and allocates resources based on each segment’s ~~profit is measured as earnings before interest, taxes, depreciation and amortization (“EBITDA”)~~EBITDA excluding acquisition and integration costs, ~~and~~impairment loss, restructuring and related charges, CEO transition costs, and direct, incremental costs related to COVID-19. The accounting policies of the reportable segments are the same as ~~shown below:~~those described in the summary of significant accounting policies. Transactions between the segments primarily consist of payments made by one segment on behalf of the other segment, which are recorded as current assets and eliminated in consolidation. Intersegment revenues and costs related to Wisely Well totaled$1.9 million for the three and six months ended June 30, 2020. The following tables present information about reported segment revenues and profit or loss, net of intersegment eliminations, as well as reconciliations of each such amount to consolidated totals:

(In thousands)
	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019						Three Months Ended June 30,
	Healthcare		Nutrition		Consolidated		Healthcare		Nutrition		Consolidated		2020						2019
													Healthcare		Nutrition		Total Segments		Healthcare		Nutrition		Total Segments
Revenues	$	159,979	$	143,918	$	303,897	$	473,987	$	384,382	$	858,369	$	81,923	$	180,675	$	262,598	$	157,481	$	182,896	$	340,377	(1)

Adjusted EBITDA	$	39,177	$	17,662	$	56,839	$	100,986	$	65,673	$	166,659
Consolidated income before income taxes																	$	34,618					$	26,252

Acquisition and integration costs					$	5,259					$	31,306						2,049						8,999
Impairment loss																		—						—
CEO transition costs																		1,745						—
COVID-19 costs																		1,260						—
Restructuring and related charges						281						4,225						1,009						2,352
Interest expense						23,006						54,334						21,235						23,661
Depreciation and amortization						9,700						22,366						12,919						9,084
Income before income taxes					$	18,593					$	54,428

Total assets as of September 30, 2019							$	379,926	$	1,625,578	$	2,005,504
Adjusted EBITDA													$	41,472	$	33,363	$	74,835	$	35,681	$	34,667	$	70,348

As of June 30, 2020, we were subject to concentration of revenue risk related to the services that we provide. For the three and six months ended June 30, 2020, a significant portion (19% and 28%, respectively) of our consolidated revenues was derived from our SilverSneakerssenior fitness offering, in which a meaningful amount of our fees is earned based on member visits to fitness partner locations. Due to widespread closures of our partner locations beginning in March 2020 related to the COVID-19 pandemic, there was a significant decrease in member participation and the related revenues during March 2020, with visits decreasing sharply by the end of March. A substantial number of our fitness partner locations remained closed for at least a portion of the second quarter. During the second quarter of 2020, the average monthly total participation levels of our SilverSneakers members were significantly below historical levels, and we also experienced a decline in paid subscribers for Prime Fitness, each of which adversely impacted revenues in our Healthcare segment. These adverse impacts to revenue were somewhat mitigated by a reduction in cost of services as our visit costs decreased in a corresponding manner.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

As used throughout this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the terms “we,” “us,” “our,” “Tivity Health,” or the “Company” refer collectively to Tivity Health, Inc. and its wholly-owned subsidiaries. Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item 1. “Financial Statements” of this report.

In January 2020, the Secretary of HHS declared a national public health emergency due to a novel strain of coronavirus, which causes the disease known as “COVID-19”. In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic, and COVID-19 continues to spread throughout the United States and other countries. Many state and local governments, together with public health officials, have recommended and mandated precautions to mitigate the spread of COVID-19, including ordering closure of certain businesses and imposing stay-at-home orders and social distancing guidelines for individuals. Such measures have resulted in significantly reduced demand for many businesses that have continued in operation.

By March 31, 2020, substantially all of the fitness centers in our national network were temporarily closed, which had an adverse impact on the results of operations in our Healthcare segment for the first quarter of 2020 because a significant portion of our Healthcare segment revenues from our SilverSneakers program is based on member visits to a fitness partner location. A substantial number of our fitness partner locations remained closed through April, with some locations reopening in May and additional locations reopening in June. For the month of June 2020, approximately 66% of our fitness partner locations reported at least one visit from our SilverSneakers program. For the second quarter of 2020, the average monthly total participation levels of our SilverSneakers members were significantly below historical levels, and we also experienced a decline in paid subscribers for Prime Fitness, each of which adversely impacted revenues in our Healthcare segment. We are unable to predict with certainty how many of our fitness partner locations will be open in the future and for what duration, or the level of member participation at our fitness partner locations.

We do not believe that COVID-19-related developments had a material impact on the results of operations or cash flows of our Nutrition segment for the first or second quarters of 2020. While overall we did not experience any significant disruptions, interruptions, or increased costs related to our supply chain, inventory, or distribution channels as a result of COVID-19, we experienced delays in fulfilling orders for our Nutrition segment’s products at certain of our warehouses due to some employees of our fulfillment provider testing positive for COVID-19. As a result, we incurred incremental expense of $1.3 million in the second quarter related to increased labor rates and overtime for employees of our fulfillment provider as well as additional shipping and related charges as we transferred the fulfillment of certain orders to other warehouses that were farther from the customer’s delivery destination.

We have taken a number of actions in response to the pandemic, including the following:

As a result of the COVID-19 pandemic, in March 2020, we experienced a significant decline in the Company’s market capitalization and in the actual and forecasted operating results of our Healthcare segment, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill and indefinite-lived intangible assets. Through this evaluation, management concluded that the fair value of goodwill allocated to the Nutrition business unit as well as the fair value of the Nutrisystem tradename were below their carrying amounts, and we recorded an impairment loss of $199.5 million, including $80.0 million related to the Nutrisystem tradename and $119.5 million related to goodwill allocated to the Nutrition segment. There were no impairment triggers during the second quarter of 2020 related to our goodwill or indefinite-lived intangible assets.

Tivity Health, Inc. ~~(the “Company”) was~~, founded and incorporated in Delaware in ~~1981. Through our programs, which include~~1981, is a leading provider of healthy life-changing solutions, including SilverSneakers, ~~senior fitness,~~Nutrisystem, Prime Fitness, Wisely Well, South Beach Diet, and WholeHealth ~~Living, we are focused on advancing health and vitality, especially in aging populations.~~Living. On March 8, 2019, we completed our acquisition of Nutrisystem, Inc. (“Nutrisystem”), ~~which is~~ a provider of weight management products and services, including nutritionally balanced weight loss programs sold primarily through the Internet and telephone and multi-day kits and single items (a la carte) available at select retail locations. The acquisition of Nutrisystem enables us to offer, at scale, an integrated portfolio of fitness, nutrition and social engagement solutions to support a healthy lifestyle and to address weight management, chronic conditions, and social determinants of health. ~~Our consolidated statements of operations include results of Nutrisystem from March 8, 2019 forward.~~

Following the acquisition of Nutrisystem, we organize and manage our operations within two reportable segments, based on the types of products and services they offer: Healthcare and Nutrition. The Healthcare segment is comprised of our legacy business and includes SilverSneakers, ~~senior fitness,~~ Prime Fitness, WholeHealth Living, and ~~WholeHealth Living.~~Wisely Well. The Nutrition segment is comprised of Nutrisystem’s legacy business and includes Nutrisystem and the South Beach Diet.

On May 6, 2020, we announced that the Board has decided to explore strategic alternatives with respect to our Nutrition business unit, including a possible transaction. We can give no assurance as to whether we will be able to identify any strategic alternatives that are likely to increase value to our stockholders.

As part of our Healthcare segment, ~~the~~ SilverSneakers ~~senior fitness program~~ is offered to members of Medicare Advantage and Medicare Supplement plans. We also offer Prime Fitness, a fitness facility access program, through commercial health plans, employers, and other sponsoring organizations. Our national network of fitness centers delivers both SilverSneakers and Prime Fitness. ~~In addition, a small portion of our fitness center network is available for discounted access through our WholeHealth Living program.~~ Our fitness networks encompass ~~approximately 17,000~~more than 16,000 partner locations and ~~more than~~approximately 1,000 alternative virtual and physical locations that provide classes outside of traditional fitness centers. Through our WholeHealth Living program, which we sell primarily to health plans, we offer a continuum of services related to complementary, alternative, and physical medicine. Our WholeHealth Living network includes relationships with approximately ~~80,000~~24,000 complementary, alternative, and physical medicine practitioners to serve individuals through health plans and employers who seek health services such as chiropractic care, acupuncture, physical therapy, occupational therapy, massage therapy, and more.

Our Nutrition segment includes Nutrisystem and the South Beach Diet. Typically, our Nutrition segment customers purchase monthly food packages containing a four-week meal plan consisting of breakfasts, lunches, dinners, snacks and flex meals, which they supplement, depending on the program they are following, with items such as fresh fruits, fresh vegetables, lean protein and dairy. Most Nutrition segment customers order on an auto-delivery, ~~basis (“Auto-Delivery”),~~ which means we send a four-week meal plan on an ongoing basis until notified of a customer’s cancellation. ~~Auto-Delivery~~Auto-delivery customers are offered savings off of our regular one-time rate with each order. Monthly notifications are also sent to remind customers to update order preferences. We offer pre-selected favorites or customers may personalize their meal plan by selecting their entire menu or by customizing plans to their specific tastes or dietary preference. In total, our plans feature approximately 250 food options including frozen and unfrozen ready-to-go entrees, snacks, and shakes, at different price points. Additionally, we offer unlimited counseling from our trained weight loss counselors, registered dietitians and certified diabetes educators at no cost. Counselors are available as needed, seven days a week throughout an extended day, with further support provided through our digital tools. The Nutrition segment also offers its products through select retailers and QVC, a television shopping network.

This report contains forward-looking statements, which are based upon current expectations, involve a number of risks and uncertainties, and are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief, or expectations of the Company, including, without limitation, all statements regarding the Company's future earnings, revenues, and results of operations. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary from those in the forward-looking statements as a result of various factors, including, but not limited to:

We undertake no obligation to update or revise any such forward-looking statements.

Tivity Health is unique in offering, at scale, a package of services to address social determinants of health – the non-medical drivers that contribute to poor health, such as socioeconomic status, access to healthy food, and access to quality care and health-related services. OurHealth’s integrated portfolio of ~~fitness, nutrition and social engagement~~healthy life-changing solutions supports overall health and wellness programs, which we believe are critical to our health plan and employer-based customers. ~~Following~~On May 6, 2020, we announced that the ~~Nutrisystem acquisition,~~Board has decided to explore strategic alternatives with regard to our Nutrition business unit, including a possible transaction. We can give no assurance as to whether we ~~believe~~will be able to identify any strategic alternatives that are likely to increase value to our stockholders. In the event that we determine to pursue a sale of the Nutrition business unit, we may be unable to secure a buyer or, if we do so, such sale transaction may not be at a price that is favorable to us. Speculation regarding any developments related to the review of strategic alternatives for our Nutrition business unit and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly. We have not set a specific timetable for the conclusion of this process. Notwithstanding the exploration of strategic alternatives, our near-term strategy for the Nutrition business unit is ~~well-positioned~~ to ~~address food insecurity, inactivity, weight management, chronic conditions,~~maximize opportunities to better serve our customers and ~~social isolation. We believe the diversification~~grow our business as well as prepare for a successful 2021 diet season. For the Healthcare business unit, we will continue to focus on adding new members, building engagement and participation among current eligible members (including expansion and enhancement of our ~~portfolio~~digital offerings and ~~increased scale will benefit all~~virtual exercise classes during and beyond the duration of the ~~Company’s stakeholders – including government~~COVID-19 pandemic), and ~~commercial~~collaborating with health plans ~~fitness partners, members~~ and ~~consumers – as our offerings support healthier lifestyles and can lower medical costs.~~

Our comprehensive “A-B-C-D” strategy has been strengthened with the acquisition of Nutrisystem. Strategy (A), add new members, will leverage Nutrisystem’s media expertise and scale to increase awareness of the SilverSneakers program and drive more enrolled members. We will also cross-promote our nutrition and fitness solutions while adding new distribution channels for Nutrisystem. Strategy (B), build more awareness, empowerment and engagement, will lean on Nutrisystem’s precision marketing competency to drive visits and present a host of nutrition offerings to SilverSneakers and Prime Fitness members. Strategy (C), collaborate with health planother partners to introduce new products and ~~services~~services. In addition, we expect that ~~leverage our~~the Healthcare business unit will continue to use the Wisely Well brand ~~trust, drove our acquisition of Nutrisystem~~ and ~~will position us~~ to offer nutrition-based as well as combined offerings. Strategy (D), deepen relationships with our fitness center partners and their instructors within our national network, is bolstered through the Nutrisystem acquisition by providing new potential revenue streams for fitness partner locations while offering yet another distribution channel for Nutrisystem through those partner locations. Our focus on revenue synergies is to address the social determinants of health, chronic conditions, and weight management and expand the channels of distribution for nutrition-based products.

The nutrition segment operates in a competitive direct-to-consumer market that is experiencing significant change. To respond to these changes, in addition to the total company A-B-C-D strategy discussed above, we are applying a two-pronged “O-E” strategy to: (O) optimize the core nutrition business, and (E) expand the business by (1) expanding reach beyond direct-to-consumer, including opportunities withsupport our health plan partners ~~and fitness partner locations and (2) leveraging our food science capabilities beyond weight loss so that we can address~~with nutrition offerings such as home meal delivery to seniors or members recently discharged from the ~~broader opportunity of nutrition-based solutions and continue to differentiate ourselves in the market.~~hospital as well as nutritional support for members with chronic conditions.

We describe our significant accounting policies in Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018 (the “2018~~2019 (“2019 Form 10-K”). We prepare the consolidated financial statements in conformity with ~~U.S~~. ~~GAAP~~generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

We believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows. ~~The first two policies presented below~~ ~~were new critical accounting policies during the three months ended March 31, 2019, which were adopted due to the acquisition of Nutrisystem.~~

We continually assess the quantities of inventory on hand to identify excess or obsolete inventory and record a provision for any estimated loss. We estimate the reserve for excess and obsolete inventory based primarily on our forecasted demand and/or our ability to sell the products, introduction of new products, future production

requirements and changes in our customers’ behavior. The reserve for excess and obsolete inventory was ~~$1.7~~$2.0 million and $1.8 million at ~~September~~June 30, ~~2019.~~2020 and December 31, 2019, respectively.

In connection with any acquisitions, we allocate the purchase price to the assets and liabilities we acquire, such as net tangible assets, deferred revenue, identifiable intangible assets such as trade names, customer lists, and customer relationships, and goodwill. We apply significant judgments and estimates in determining the fair market value of the assets acquired and their useful lives. For example, we estimated the fair value of existing definite-lived customer lists based on the multi-period excess earnings method under the income approach, which involved ~~estimates of~~applying an attrition rate to the estimated net future cash flows from ~~such~~the customers ~~existing at~~that existed as of the ~~date of~~ acquisition ~~a discount rate, and a customer attrition rate.~~date. We estimated the fair values of the tradenames using the relief-from-royalty method, which required ~~estimates~~significant assumptions such as the long-term growth rates of future revenues, ~~attributable to such tradenames,~~ the ~~long-term growth rate and~~ royalty rate for such revenue, the terminal growth rate of revenue, the tax rate, and a discount rate. Different estimates and assumptions in valuing acquired assets could yield materially different results.

We reviewgoodwillfor impairmevent at thereportingunitlevel (operatingsegmentor onelevelbelowanoperatingsegment) on an annual basis (during the fourth quarter of our fiscal year) or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. Following the acquisition of Nutrisystem in March 2019, we have two reporting units: Healthcare and Nutrition. Prior to such acquisition, we had one reporting unit. As further described below under “Impairment Loss,” in March 2020, we experienced a significant decline in the Company’s market capitalization and in the actual and forecasted operating results of our Healthcare segment, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill and indefinite-lived intangible assets. Through this evaluation, management concluded that the fair value of goodwill allocated to the Nutrition business unit as well as the fair value of the Nutrisystem tradename were below their carrying amounts, and during the first quarter of 2020, we recorded an impairment loss of $199.5 million,including $80.0 million related to the Nutrisystem tradename and $119.5 million related to goodwill allocated to the Nutrition segment. See Note 12 of the notes to consolidated financial statements included in this report.

As part of the annual impairment test, we may elect to perform a qualitative assessmenuet to determinewhether it is more likely than not that the fair valueof a reportingunit is less thanits carrying value.If we elect not to perform a qualitativeassessment or we determine that it is more likely than not that the fair valueof a reportingunit is less thanits carrying value, we perform a quantitative review as described below.

During a quantitative review of goodwill, we estimate the fair value of each reporting unit based on a discounted cash flow model or a combination of a discounted cash flow model and market-based approaches, and we reconcile the aggregate fair value of our reporting units to our consolidated market capitalization. If the fair value of the reporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its carrying amount, impairment of goodwill is measured as the excess of the carrying amount over fair value. Estimating fair value requires significant judgments, including management's estimate of future cash flows of each reporting unit (which is dependent on internal forecasts of projected income), estimation of the long-term growth rates of future revenues for our reporting units, the terminal growth rate of revenue, the tax rate, and determination of the weighted average cost of capital, as well as relevant comparable company revenue and earnings multiples and market participant acquisition premium for the market-based approaches. Changes in these estimates and assumptions could materially affect the estimate of fair value and potential goodwill impairment for each reporting unit.

Except for two tradenames that have an indefinite life and are not subject to amortization, we amortize identifiable intangible assets over their estimated useful lives on a straight-line or accelerated basis based on the period for which the economic benefits of the asset are expected to be realized.We assess the potential impairment of intangible assets subject to amortizationwhenever events orchanges in circumstances indicate that

the carrying values may not be recoverable. If we determine thatthe carrying value of other identifiable intangible assetsmay not be recoverable,we calculateany impairment using an estimate of theasset's fairvalue based on the estimated price that would be receivedto sellthe asset inanorderlytransactionbetweenmarketparticipants.

We review indefinite-lived intangible assets for impairment on an annual basis (during the fourth quarter of our fiscal year) or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. We estimate the fair value of our indefinite-lived tradenames using the relief-from-royalty method, which requires us to estimate significant assumptions such as the long-term growth rates of future revenues associated with the tradename, the royalty rate for such revenue, the terminal growth rate of revenue, the tax rate, and a discount rate. Changes in these estimates and assumptions could materially affect the estimates of fair values for the tradenames.

~~Beginning in 2018, we~~We account for revenue from contracts with customers in accordance with Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC Topic ~~606.~~606”). The unit of account in ASC Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided over a period of time. ASC Topic 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when or as the performance obligation is satisfied.

Our Healthcare segment earns revenue from our three programs, SilverSneakers senior fitness, Prime Fitness and WholeHealth Living. We provide the SilverSneakers senior fitness program to members of Medicare Advantage and Medicare Supplement plans through our contracts with those plans. We offer Prime Fitness, a fitness facility access program, through contracts with ~~employers,~~ commercial health plans, employers, and other sponsoring organizations that allow their members to individually purchase the program. We sell our WholeHealth Living program primarily to health plans.

The significant majority of our Healthcare segment’s customer contracts contain one performance obligation - to stand ready to provide access to our network of fitness locations and fitness programming - which is satisfied over time as services are rendered each month over the contract term. There are generally no performance obligations that are unsatisfied at the end of a particular month. There was no material revenue recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from performance obligations satisfied in a prior period.

Our fees within our Healthcare segment are variable month to month and are generally billed per member per month (“PMPM”) or billed based on a combination of PMPM and member visits to a network location. We bill PMPM fees by multiplying the contractually negotiated PMPM rate by the number of members eligible for or receiving our services during the month. We bill for member visits approximately one month in arrears once actual member visits are known. Payments from customers are typically due within 30 days of invoice date. When material, wewe capitalize costs to obtain contracts with customers and amortize them over the expected recovery ~~period.~~ period.

Although we evaluate our financial performance and make resource allocation decisions based upon the results of our two reportable segments, we believe the following information depicts how our Healthcare segment revenues and cash flows are affected by economic factors. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, revenue from our SilverSneakers program, which is predominantly contracted with Medicare Advantage and Medicare

Supplement plans, comprised approximately ~~78%~~60% and 71%, respectively, of revenues in the Healthcare segment, while revenue from our Prime Fitness program comprised approximately 23% and 21%, respectively of revenues in the Healthcare segment, and our WholeHealth Living ~~programs~~program comprised approximately ~~19%~~6% and 3%4%, respectively, of revenues in the Healthcare segment. Other revenues, which were earned from health plans and a large employer, comprised 11% and 4% of our revenues for the three and six months ended June 30, 2020, respectively.

Our Nutrition segment earns revenue from four sources: direct to consumer, retail, QVC and other. Revenue is measured based on the consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. As explained in more detail below, revenue is recognized upon satisfaction of the performance obligation by transferring control over a product to a Nutrition segment customer. The estimated breakage of gift cards (estimated amount of unused gift cards) is recognized over the pattern of redemption of the gift cards, and direct-mail advertising costs are expensed as incurred. We recognize an asset for the carrying amount of product to be returned and for costs to obtain a contract if the amortization is more than one year in duration. We expense costs to obtain a contract as incurred if the amortization period is less than one year.

We sell pre-packaged foods directly to weight loss program participants primarily through the Internet and telephone (referred to as the direct to consumer channel), through QVC (a television shopping network), and select retailers. Pre-packaged foods are comprised of both frozen and non-frozen (ready-to-go), shelf-stable products.

Products sold through the direct to consumer channel, both frozen and non-frozen, may be sold separately (a la carte) or as part of a packaged monthly meal plan for which Nutrition segment customers pay at the point of sale. Products sold through QVC are payable by QVC upon our shipment of the product to the end consumer. For both the direct to consumer channel and QVC, we recognize revenue at a point in time, i.e., at the shipping point. Direct to consumer customers may return unopened ready-to-go Nutrisystem products within 30 days after purchase in order to receive a refund or credit. Frozen Nutrisystem products are non-returnable and non-refundable unless the order is canceled within 14 days after delivery. South Beach Diet products are not refundable.

to gift card buyers. The wholesaler has the right to return all unsold prepaid gift cards. The wholesaler’s retail selling price of the gift cards is deferred in the balance sheet and recognized as revenue when we have satisfied our performance obligation, i.e., when a gift card holder redeems the gift card with us. We recognize breakage amounts (the estimated amount of unused gift cards) as revenue, in proportion to the actual gift card redemptions exercised by gift card holders in relation to the total expected redemptions of gift cards. We utilize historical experience in estimating the total expected breakage and period over which the gift cards will be redeemed.

We review the reserves for our Nutrition segment customer returns at each reporting period and adjust them to reflect data available at that time. To estimate reserves for returns, we consider actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, we will adjust the reserve, which will impact the amount of revenue recognized in the period of the adjustment. The provision for estimated returns for the three and ~~nine~~six months ended ~~September~~June 30, 2020 was $4.1 million and $9.3 million, respectively. The provision for estimated returns for the three and six months ended June 30, 2019 was ~~$3.9~~$5.6 million and ~~$11.0~~$7.0 million, respectively. The reserve for estimated returns incurred but not received and processed was ~~$1.3~~$1.4 million and $0.8 million at ~~September~~June 30, 2020 and December 31, 2019, respectively, and has been included in accrued liabilities in the accompanying consolidated balance sheet.

Im~~pair~~m~~ent of Intangible Assets~~ a~~nd G~~oo~~dwill~~Key Performance Indicators

In managing our business, we regularly review and analyze a number of key performance indicators (“KPIs”), including revenues by segment, adjusted EBITDA by segment (both in dollars and as a percentage of revenues), and free cash flow. Free cash flow is not calculated in accordance with U.S. GAAP (“non-GAAP”). These KPIs help us monitor our performance, identify trends affecting our business, determine the allocation of resources, and assess the quality and potential variability of our cash flows and earnings. We ~~review~~believe they are useful to investors in evaluating and understanding our business.

~~for i~~mp~~airm~~e~~nt at therep~~o~~rtingunitlev~~e~~l (op~~e~~rat~~ingse~~gment~~o~~r onelevel~~be~~low~~ano~~perating~~se~~gmen~~t~~) on an a~~n~~nualbas~~i~~s (~~during~~the fourth q~~u~~arter of o~~u~~r fiscal year) ormore frequ~~ent~~ly wheneverevents orcircumsta~~nce~~s i~~n~~dicatethat th~~e ~~carryin~~gvalue may not be re~~cov~~e~~rab~~le~~. Following the acquisition of Nutrisystem in March 2019, we have two reporting units: Healthcare and Nutrition. Prior to such acquisition, we had one reporting unit.~~

~~As part~~Although there is significant uncertainty relating to the potential impacts of the ~~impairment evaluation, we may elect to perf~~o~~rm a qualitative ass~~essmen~~t to determinewhether it is more l~~i~~kely than not that~~COVID-19 pandemic on our business going forward, including the ~~fair value~~duration of ~~a rep~~o~~rtingunit is less thanits c~~a~~rryi~~n~~g value.~~If w~~e elect not to perform a qualitat~~ive~~assessment or we determine that it is more l~~i~~kely than not that~~ the ~~fair valueof a rep~~o~~rtingunit is less thanits c~~a~~rryi~~n~~g value, we perform a quantitative review as descr~~i~~bed be~~l~~ow.~~

~~Dur~~i~~ng a q~~ua~~ntitative review of goo~~d~~will,we estimate~~outbreak, the~~fair value of eachrep~~o~~rting unit based on a discounted cash flow model or a combination~~ ~~of a discounted cash flow model~~ timing and ~~a market-based approach, and we reconcile the aggregate fair value~~duration of our ~~reporting units~~fitness partner locations being open, the impact on member participation in our SilverSneakers programs, and the ultimate medium- and long-term impact of the pandemic on the global economy, we expect our results of operations for the short term to be adversely impacted by COVID-19, primarily in our Healthcare segment, when compared to the same periods in the prior year and to our ~~consolidated market capitalization. If~~expectations at the ~~fair value~~beginning of 2020. For the reporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its carrying amount, impairment of goodwill is measured as the excess of the carrying amount over fair value. Estimating fair value requires significant judgments, including management's estimate of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital, as well as relevant comparable company earnings multiplesNutrition segment, we expect revenues for the ~~market-based approach. Changes~~third quarter of 2020 to decrease compared to the second quarter of 2020 due to normal seasonality in ~~these estimates and assumptions could materially affect the estimate of fair value and potential goodwill impairment for each reporting unit.~~this business.

~~Except for two tradenames that have an indef~~init~~e life and are not subject to amort~~i~~zation, we amortize identifiable~~ i~~ntangib~~l~~e asset~~s ~~over their estimated usef~~u~~l lives usi~~n~~g the stra~~i~~ght-l~~in~~e method.We as~~se~~ss the potential~~ i~~mpair~~m~~ent of intangible assets subject to amortiz~~a~~tionwhenever e~~v~~ents orchanges in c~~i~~rcu~~m~~stances indicate thatthe carrying values may not be recoverable. If we determine thatthe carrying value of other identifiable intangible assetsmay n~~o~~t be recoverable,we calculateany impair~~me~~nt using an estimate of t~~he a~~sset's fair~~ v~~alue based on the estima~~t~~ed pr~~i~~ce that wou~~l~~d be received to sell the asset in an or~~d~~erly tra~~nsa~~ction b~~e~~tween m~~a~~rketpartici~~pants. We estimate the fair value of our indefinite-lived tradenames using a present value technique, which requires management's estimate of future revenues attributable to such tradename, estimation of the long-term growth rate and royalty rate for such revenue, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the estimates of fair values for the tradenames.

The key financial results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~ 2020 are:

The following table sets forth the components of the consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 expressed as a percentage of revenues from continuing operations.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue (exclusive of depreciation and amortization included below)		58.8	%		68.4	%		59.9	%		69.2	%		45.0	%		57.2	%		52.9	%		60.4	%
Marketing expenses		15.4	%		2.2	%		14.6	%		2.4	%		19.5	%		16.0	%		23.0	%		14.2	%
Selling, general and administrative expenses		8.9	%		5.2	%		9.8	%		5.3	%		8.9	%		8.7	%		8.6	%		10.3	%
Depreciation and amortization		3.2	%		0.8	%		2.6	%		0.8	%		4.9	%		2.7	%		4.6	%		2.3	%
Impairment loss														—			—			33.2	%		—
Restructuring and related charges		0.1	%		—			0.5	%		0.0	%		0.4	%		0.7	%		0.3	%		0.7	%
Operating income ⁽¹⁾		13.7	%		23.4	%		12.7	%		22.3	%
Operating income (loss) ⁽¹⁾														21.3	%		14.7	%		(22.6	)%		12.1	%

Interest expense		7.6	%		0.7	%		6.3	%		1.8	%		8.1	%		7.0	%		7.1	%		5.7	%
Income before income taxes ⁽¹⁾		6.1	%		22.7	%		6.3	%		20.6	%
Income (loss) before income taxes ⁽¹⁾														13.2	%		7.7	%		(29.8	)%		6.5	%
Income tax expense		1.5	%		6.0	%		2.1	%		5.3	%		2.3	%		2.4	%		(1.5	)%		2.4	%
Income from continuing operations ⁽¹⁾		4.6	%		16.7	%		4.2	%		15.3	%
Income from discontinued operations, net of tax		—			—			—			0.2	%
Net income ⁽¹⁾		4.6	%		16.7	%		4.2	%		15.5	%
Net income (loss) ⁽¹⁾														10.9	%		5.3	%		(28.3	)%		4.0	%

~~Revenues for the three months ended~~ ~~September~~ ~~30, 2019 increased to~~ ~~$303.9~~ ~~million compared to $151.5~~ ~~millio~~n fo~~r the same period in 2018,~~ ~~primarily due to $143.9 million of revenues attributable to the acquisition of Nutrisystem. Excluding the acquisition, revenues in the Healthcare segment increased by $8.5 million, primarily as~~ ~~a result of (i) an increase in Prime Fitness revenue of $5.1 million driven by an increase in average subscribers~~ ~~for the three months ended~~ ~~September~~ ~~30, 2019 compared to the three months ended~~ ~~September~~ ~~30, 2018 and (ii) a net increase in SilverSneakers revenue of $2.6 million, primarily due to an increase in revenue-generating visits somewhat offset by a decrease in the number of eligible lives.~~

Revenues were $262.6 million for the ~~nine~~second quarter of 2020 compared to $340.4 million for the second quarter of 2019, including the following revenues by segment:

Revenues were $600.3 million for the six months ended June 30~~September~~ ~~30, 2019 increased to~~ ~~$858.4~~, 2020 ~~million~~ compared to $~~453.3~~ ~~millio~~n fo~~r the same period in 2018,~~ ~~primarily due to $384.4~~$554.5 million ~~of revenues attributable to the acquisition of Nutrisystem. Excluding the acquisition, revenues in the Healthcare segment increased by $20.7 million, primarily as~~ ~~a result of (i) an increase in Prime Fitness revenue of $13.7 million driven by an increase in average subscribers~~ for the ~~nine~~six months ended June 30~~September~~ ~~30,~~, 2019, ~~compared to~~including the ~~nine months ended~~ ~~September~~ ~~30, 2018 and (ii) a net increase in SilverSneakers revenue of $5.3 million, primarily due to an increase in revenue-generating visits somewhat offset~~following revenues by ~~a decrease in the number of eligible lives.~~segment:

Cost of revenue (excluding depreciation and amortization) (“Cost of Revenue”) was $118.2 million, or 45.0%~~as a percentage~~ of revenues, ~~decreased from~~for the ~~three and nine months ended September30, 2018 (68.4%) and (69.2%), respectively, to the three and nine months ended September30, 2019 (58.8%) and (59.9%), respectively, primarily due to the acquisition of Nutrisystem in the first~~second quarter of ~~2019. The Nutrition segment carries a lower cost of revenue as a percentage~~2020 compared to $194.8 million, or 57.2% of revenues, ~~than~~for the ~~Healthcare segment.~~ second quarter of 2019, including the following Cost of Revenue by segment:

Cost of ~~revenue (excluding depreciation and amortization) as a percentage~~Revenue was $317.4 million, or 52.9% of revenues, for the six months ended June 30, 2020compared to $335.1 million, or 60.4% of revenues, for the ~~Healthcare segment increased from the three~~six months ended ~~September~~June 30 ~~2018 (68.4%) to~~, 2019, including the ~~three months ended~~

~~September30, 2019 (69.8%), primarily due to (i) an increase in cost per visit due to certain contract renegotiations, as well as a higher number~~following Cost of ~~average visits per member per month in 2019 compared to 2018 and (ii) acquisition and integration costs in 2019 related to the acquisition of Nutrisystem.~~Revenue by segment:

~~Cost of revenue (excluding depreciation and amortization) as a percentage of revenues for the Healthcare segment increased from the nine months ended September30, 2018 (69.2%) to the nine months ended September~~30, 2019 (71.0%), primarily due to (i) an increase in cost per visit due to certain contract renegotiations, as well as a higher number of average visits per member per month in 2019 compared to 2018 and (ii) acquisition and integration costs in 2019 related to the acquisition of Nutrisystem.

Marketing expenses ~~as a percentage~~were $51.1 million, or 19.4% of revenues, ~~increased from~~for the ~~three and nine months ended September 30, 2018 (2.2%) and (2.4%), respectively,~~second quarter of 2020 compared to the three and nine months ended September 30, 2019 (15.4%) and (14.6%), respectively, primarily due to the impact from the acquisition of Nutrisystem in 2019 and the significance of media and marketing expense to the Nutrition segment’s sales strategy. For the Healthcare segment, marketing expenses as a percentage$54.6 million, or 16.0% of revenues, ~~increased from~~for the ~~nine months ended September30, 2018 (2.4%) to the nine months ended September30, 2019 (3.3%), primarily due to increased spending in the first~~second quarter of 2019, ~~on SilverSneakers advertising and media campaigns as well as increased staffing;~~including the following marketing expenses by segment:

Marketing expenses were $138.2 million, or 23.0% of revenues, ~~decreased from~~for the ~~three~~six months ended ~~September~~June 30~~30, 2018 (2.2%)~~, 2020 compared to $78.8 million, or 14.2% of revenues, for the ~~three~~six months ended ~~September~~June 30, ~~30,~~ 2019, ~~(1.4%) primarily due to~~including the ~~timing of~~following marketing ~~spend throughout the year.~~ expenses by segment:

Selling, general and administrative (“SG&A”) expenses were a$23.5 million, or 8.9%~~s a percent~~age of rrevenues, for the second quarter of 2020 compared to $29.7 million, or 8.7% of revenues, for the second quarter of 2019, including the following SG&A expenses by segment:

SG&A expe~~venu~~nses ~~increased from~~ ~~the~~were $51.5 million, or 8.6% ~~three and nine~~of revenues, for the six months ended ~~September~~June 30 ~~2018 (5.2%) and (5.3%)~~, ~~respectively,~~2020 compared to $56.9 million, or 10.3% of revenues, for the ~~to the~~ ~~three and nine~~six months ended ~~September~~June 30 ~~2019 (8.9%) and (9.8%)~~, ~~respectively,~~2019, including the following SG&A expenses by segment:

During the first quarter of ~~$4.0~~2020, we recorded an impairment loss of $199.5 million, ~~and $27.2~~including $80.0 million ~~during the three and nine months ended September 30, 2019, respectively,~~ related to the ~~acquisition~~Nutrisystem tradename and $119.5 million related to goodwill allocated to the Nutrition segment. These impairment losses were primarily attributable to rapidly changing market and economic conditions resulting from the COVID-19 pandemic. See Note 12 of ~~Nutrisystem.~~ the notes to consolidated financial statements included in this report.

During the first quarter of 2019, we began a reorganization primarily related to integrating the Healthcare and Nutrition segments and streamlining our corporate and operations support ~~(the "2019~~("2019 Restructuring Plan"). The 2019 Restructuring Plan concluded during the first quarter of 2020. For the three and six months ended ~~September~~June 30, 2019, we incurred restructuring charges of ~~$0.3~~$2.4 million and $3.9 million, respectively, related to the 2019 Restructuring Plan, ~~the significant majority~~ of which $0.8 million and $1.8 million, respectively, related to the Healthcare segment and $1.6 million and $2.1 million, respectively, related to the Nutrition segment. ~~To date and for~~For the ~~nine~~six months ended ~~September~~ June 30, ~~2019,~~2020, we ~~have~~ incurred restructuring charges of ~~$4.2~~$0.7 million related to the 2019 Restructuring Plan, of which ~~$1.8~~$0.5 million related to the Healthcare segment and $0.2 million related to the Nutrition segment. To date, we have incurred restructuring charges of $7.8 million related to the 2019 Restructuring Plan, of which $2.4 million related to the Healthcare segment and $5.4 million related to the Nutrition segment. These expenses consist entirely of severance and other employee-related costs. The 2019 Restructuring Plan is expected to result in total annualized savings ~~beginning~~ in 2020 of approximately ~~$10.3~~$19.5 million, with ~~$5.9~~$6.7 million relating to the Healthcare segment and ~~$4.4~~$12.8 million relating to the Nutrition segment.

During the second quarter of 2020, we began a reorganization plan primarily related to eliminating certain compensation costs in response to the COVID-19 pandemic in order to preserve our liquidity and manage our cash flows (“2020 COVID Restructuring Plan”). To date, and for the three and six months ended June 30, 2020, we incurred restructuring charges of $1.0 million related to the 2020 COVID Restructuring Plan, of which $0.8 million related to the Healthcare segment and $0.2 million related to the Nutrition segment. These expenses consist entirely of severance and other employee-related costs. The 2020 COVID Restructuring Plan is expected to result in total annualized savings at target performance of approximately $7.5 million, with $6.0 million relating to the Healthcare segment and $1.5 million relating to the Nutrition segment.

Depreciation and amortization expense increased ~~$8.5 million and $18.9~~by $3.8 million for the ~~three and nine months ended September 30, 2019, respectively,~~second quarter of 2020 compared to the ~~same periods in 2018,~~second quarter of 2019, primarily due to increased amortization expense on ~~new~~ intangible assets ~~recorded~~ in ~~connection with~~the Nutrition segment due to an adjustment to the customer list intangible asset to finalize the preliminary purchase price allocation during the fourth quarter of 2019 based on information obtained regarding facts and circumstances that existed as of the acquisition date.

Depreciationand amortization expenseincreased by $15.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the acquisition of Nutrisystem ~~as well as increased~~on March 8, 2019, which resulted in additional depreciation and amortization expense in 2020 attributable to the acquisition of Nutrisystem’s property and ~~equipment.~~equipment as well as intangible assets recorded in connection with the acquisition.

Interest expense ~~increased $22.0 million and $46.4~~decreased by $2.4 million for the ~~three and nine months ended September30, 2019, respectively,~~second quarter of 2020 compared to the ~~same periods~~second quarter of 2019, primarily due to a lower level of outstanding borrowings in ~~2018,~~2020 under the Credit Agreement (as defined below).

Interest expense increased by $11.6 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to our entering ~~into the Credit Agreement on March 8, 2019, including term loans with an initial borrowing of $1,180 million, in connection with the acquisition of Nutrisystem.~~

~~See Note 9 of the notes to consolidated financial statements in this report for a discussion of income tax expense.~~

~~As of September 30, 2019, we had a working capital deficit of~~ ~~$9.1 million. Based upon the pro forma calculations of compliance with the applicable covenants under our credit agreement, as of~~ ~~September~~ 30, 2019, we anticipate the ability to borrow under the Revolving Credit Facility (as defined below) up to a maximum of $115.5 million for the next 12 months and the foreseeable future. We believe our cash on hand, cash flows from operations and anticipated available credit under the Credit Agreement will be sufficient to fund our operations, debt payments and capital expenditures for the next 12 months and the foreseeable future. ~~We cannot assure you that we will be able to secure additional financing if needed and, if such funds are available, whether the terms or conditions will be favorable to us.~~

~~In connection with the consummation of the acquisition of Nutrisystem, on March 8, 2019, we entered~~ into a new Credit and Guaranty Agreement (the “Credit Agreement”) with a group of lenders, Credit Suisse AG, Cayman Islands Branch, as general administrative agent, term facility agent and collateral agent, and SunTrust Bank, as revolving facility agent and ~~swing line~~swingline lender, ~~(“SunTrust”). The~~on March 8, 2019, including term loans with an initial borrowing of $1,180 million, in connection with the acquisition of Nutrisystem.

See Note 8 of the notes to consolidated financial statements in this report for a discussion of income tax expense.

As of June 30, 2020, outstanding debt under the Credit Agreement ~~replaced~~was $1.0 billion, and we had $60.3 million of cash and cash equivalents.

As of June 30, 2020, we had a working capital deficit of $5.7 million. While the COVID-19 pandemic has created significant uncertainty as to general economic and market conditions for the remainder of 2020 and beyond, as of the date of this report, we believe our ~~prior~~cash on hand, expected cash flows from operations, and anticipated available credit under the Credit Agreement will be sufficient to fund our operations, principal and interest payments, and capital expenditures (which we currently plan to curtail for the remainder of 2020) for the next 12 months. We cannot assure you that we will be able to secure additional financing if needed and, if such funds are available, whether the terms or conditions will be favorable to us. With the uncertainty surrounding COVID-19, our ability to engage in financing transactions may be constrained by (i) volatile or tight economic, capital, credit and/or financial market conditions, (ii) moderated investor and/or lender interest or capacity, (iii) restrictions under our Credit Agreement, and/or (iv) our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions. As of June 30, 2020, availability under the Revolving Credit ~~and Term Loan Agreement, dated April 21, 2017 (the “Prior~~ Facility totaled $124.5 million as calculated under the most restrictive covenant.

In connection with ~~a group~~the consummation of ~~lenders and SunTrust, as administrative agent.~~the acquisition of Nutrisystem, on March 8, 2019, we entered into the Credit Agreement. The Credit Agreement provides us with (i) a $350.0 million ~~term loan A facility (“~~Term Loan ~~A”),~~A, (ii) an $830.0 million ~~term loan B facility (“~~Term Loan ~~B” and, together with Term Loan A, the “Term Loans”),~~B, (iii) a $125.0 million revolving credit facility that includes a $35.0 million sublimit for swingline loans and a $50.0 million sublimit for letters of credit, ~~(the “Revolving Credit Facility”; Term Loan A, Term Loan B and the Revolving Credit Facility are sometimes herein referred to collectively as the “Credit Facilities”),~~ and (iv) uncommitted incremental accordion facilities in an aggregate amount at any date equal to the greater of $125.0 million or 50% of our consolidated EBITDA for the then-preceding four fiscal quarters, plus additional amounts based on, among other things, satisfaction of certain financial ratio requirements.

We used the proceeds of the Term Loans, borrowings under the Revolving Credit Facility and cash on hand to pay the consideration for the acquisition of Nutrisystem, to repay all of the outstanding indebtedness under the Prior Credit Agreement and all outstanding indebtedness of Nutrisystem under its credit agreement, and to pay transaction costs and expenses. Proceeds of the Revolving Credit Facility also may be used for general corporate purposes of the Company and its subsidiaries.

We are required to repay Term Loan A loans in consecutive quarterly installments, each in the amount of 2.50% of the aggregate initial amount of such loans, payable beginning on June 30, 2019 and on the last day of each succeeding quarter thereafter until maturity on March 8, 2024, at which time the entire outstanding principal balance of such loans is due and payable in full. We are required to repay Term Loan B loans in consecutive quarterly installments, each in the amount of 0.75% of the aggregate initial amount of such loans, payable beginning on June 30, 2019 and on the last day of each succeeding quarter thereafter until maturity on March 8, 2026, at which time the entire outstanding principal balance of such loans is due and payable in full. We are permitted to make voluntary prepayments of borrowings under the Term Loans at any time without penalty. From March 8, 2019 through ~~September~~June 30, ~~2019,~~2020, we made payments of ~~$105.0~~$125.0 million on the Term Loans, which included prepayments of all amounts due through ~~December~~March 31, ~~2020.~~2021, excluding any Excess Cash Flow Payments that may be required, as described below. We are required to repay in full any outstanding swingline loans and revolving loans under the Revolving Credit Facility on March 8, 2024. In addition, the Credit Agreement contains provisions that, beginning with fiscal 2019, may require annual excess cash flow (as defined in the Credit Agreement and generally designed to equal cash generated by our business in excess of cash used in the business) to be applied towards the Term Loans. We are required to make prepayments on the Term Loans equal to our excess cash flow for a given fiscal year multiplied by the following excess cash flow percentages (such resulting payment an “Excess Cash Flow Payment”) based on our ~~net leverage ratio~~Net Leverage Ratio (as defined in the Credit Agreement) on the last day of such fiscal year: (a) 75% if the ~~net leverage ratio~~Net Leverage Ratio is greater than 3.75:1, (b) 50% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 3.75:1 but greater than 3.25:1 (c) 25% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 3.25:1 but greater than 2.75:1, and (d) 0% if the ~~net leverage ratio~~Net Leverage Ratio is equal to or less than 2.75:1. Any such potential mandatory prepayments are reduced by voluntary prepayments. ~~As of September30, 2019, availability under~~ ~~the revolving credit facility totaled~~We were not required to make an Excess Cash Flow Payment for fiscal 2019.

~~For a detailed description of the Credit Agreement, refer to Note 11 of the notes to consolidated financial statements in this report.~~ The Credit Agreement contains a financial covenant that requires us to maintain ~~specified~~ maximum ratios or levels of consolidated total net debt to consolidated adjusted EBITDA, calculated as provided in the Credit ~~Agreement. We~~Agreement (the “Net Leverage Ratio”), of 5.75:1.00 for all test dates occurring on or after December 31, 2019 but prior to December 31, 2020, 5.25:1.00 for all test dates occurring on or after December 31, 2020 but prior to December 31, 2021, and 4.75:1.00 for all test dates occurring on or after December 31, 2021. As of June 30, 2020, we were in compliance with all of the ~~financial~~ covenant requirements of the Credit Agreement, asand our Net Leverage Ratio was equal to 4.08.

In July 2020, we repaid $24.8 million of ~~September 30, 2019.~~ principal on the term loans under our credit agreement, resulting in our next required quarterly installment being due in December 2021. Based on our current assumptions with respect to the COVID-19 pandemic, including, among other things, our fitness partner locations reopening and/or remaining open and the average monthly total participation levels of our members at such locations, we currently believe we will be in compliance with the Net Leverage Ratio covenant over the next 12 months; however, given the significant uncertainty relating to the potential impacts of the COVID-19 pandemic on our business going forward, there are potential scenarios under which we could fail to comply with the Net Leverage Ratio covenant. Our failure to comply with the Net Leverage Ratio covenant would result in an event of default that, if not waived, could have a material adverse effect on our financial condition, results of operations or debt service capability. We will continue to monitor our projected ability to comply with all covenants under the Credit Agreement, including the Net Leverage Ratio, which could include seeking an amendment to or waiver of the Net Leverage Ratio covenant if necessary.

Operating activities during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 provided cash of ~~$84.8~~$130.9 million compared to ~~$74.5~~$49.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The increase in operating cash flow is primarily due to ~~net cash flows provided by the Nutrition segment offset by~~(i) increased collections on accounts receivable, (ii) decreased payments related to ~~interest and~~ acquisition and integration costs, and (iii) decreased payments related to visit costs. These changes were partially offset by higher interest payments related to borrowings under the Credit Agreement.

Investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 used ~~$1,078.2~~$10.4 million in cash, compared to ~~$5.0~~$1,072 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This change is primarily due to the acquisition of ~~Nutrisystem.~~Nutrisystem in March 2019.

Financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 ~~provided~~used ~~$998.3~~$62.8 million in cash, compared to cash ~~used~~provided of ~~$96.2~~$1,025 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This ~~change~~decrease is primarily due to a higher amount of net borrowings under the Credit Agreement ~~slightly offset by~~in 2019 (compared to net payments under the Credit Agreement in 2020) and the payment of deferred loan ~~costs.~~

~~If contract development accelerates or~~costs in 2019, each related to the acquisition ~~opportunities arise, we may need to issue additional debt or equity securities to provide the funding for these increased growth opportunities. We may also issue debt or equity securities~~of Nutrisystem in ~~connection with future acquisitions or strategic alliances. We cannot assure you that we would be able to issue additional debt or equity securities on terms that would be favorable to us.~~March 2019.

See Note 32 of the notes to consolidated financial statements included in this report for discussion of recent relevant accounting standards.

We are subject to market risk related to interest rate changes, primarily as a result of the Credit Agreement. B~~Borrowings~~orrowings under the Credit Agreement bear interest at variable rates based on a margin or spread in excess of either (1) one-month, two-month, three-month or six-month LIBOR (or, with the approval of all lenders holding the particular class of loans, 12-month LIBOR), which may not be less than zero, or (2) the greatest of (a) the prime lending rate of the agent bank for the particular facility, (b) the federal funds rate plus 0.50%, and (c) one-month LIBOR plus 1.00% ~~(the “Base~~(“Base Rate”), as selected by the Company. The LIBOR margin for Term Loan A loans is 4.25%, the LIBOR margin for Term Loan B loans is 5.25%, and the LIBOR margin for revolving loans varies between 3.75% and 4.25%, depending on our total ~~net leverage ratio.~~Net Leverage Ratio. The Base Rate margin for Term Loan A loans is 3.25%, the Base Rate margin for Term Loan B loans is 4.25%, and the Base Rate margin for revolving

loans varies between 2.75% and 3.25%, depending on our total ~~net leverage ratio.~~Net Leverage Ratio. Effective May 31, 2019, we maintain amortizing interest rate swap agreements with current notional amounts totaling ~~$900.0~~$800.0 million, through which we receive a variable rate of interest based on LIBOR, and we pay a fixed rate of interest equal to approximately 2.2% plus a spread.

We estimate that a one-point interest rate change in our floating rate debt would have resulted in a change in interest expense of approximately ~~$3.5~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

The Company's principal executive officer and principal financial officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of ~~September~~June 30, ~~2019.~~2020. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are ~~effective.~~effective as of June 30, 2020. They are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

There were no changes in the Company's internal controls over financial reporting during the three months ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

See Note 1211 of the notes to consolidated financial statements included in this report for discussion of recent legal proceedings.

Part I, Item 1A. “Risk Factors” in ~~our 2018~~the 2019 Form 10-K, as amended and restated in its entirety in Part II, Item 1A. “Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, is amended and restated in its entirety as follows:

In the execution of our business strategy, our operations and financial condition are subject to certain risks. A summary of certain material risks is provided below, and you should take such risks into account in evaluating any investment decision involving the Company. This section does not describe all risks applicable to us and is intended only as a summary of certain material factors that could impact our operations in the industry in which we operate. Other sections of this report contain additional information concerning these and other risks.

~~Our business strategy relating~~The COVID-19 pandemic has had, and is expected to ~~the development and introduction of new products and services exposes us~~continue to ~~risks such as limited customer and/or market acceptance and additional expenditures that may not result in additional net revenue.~~

~~An important component of~~have, a material adverse effect on our business ~~strategy is to focus on new products~~ and services that enable us to provide immediate value to our customers. Customer and/or market acceptance of these new products and services cannot be predicted with certainty, and if we fail to execute properly on this strategy or to adapt this strategy as market conditions evolve, our ability to grow revenue and our results of ~~operations may be adversely affected.~~

~~If we fail to successfully implement our business strategy, our financial performance and our growth could be materially and adversely affected.~~

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our strategy will require effective management of our operational, financial and human resources and will place significant demands on those resources. See Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations – Business Strategy" in this report for more information regarding our business strategy. There are risks involved in pursuing our strategy, including the ability to hire or retain the personnel necessary to manage our strategy effectively.operations.

In ~~addition~~late 2019, COVID-19 was reported to have surfaced in Wuhan, China and has spread to other countries, including the ~~risks set forth above, implementation~~United States. In January 2020, the Secretary of HHS declared a national public health emergency due to COVID-19, and in March 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic. Many state and local governments, together with public health officials, have recommended and mandated precautions to mitigate the spread of COVID-19, including ordering closure of certain businesses and imposing stay-at-home orders and social distancing guidelines for individuals. As a result, by March 31, 2020, substantially all of the fitness centers in our national network were temporarily closed. A substantial number of our fitness partner locations remained closed through April 2020. Although some locations reopened in May 2020 and additional locations reopened in June 2020, the average monthly total participation levels of our ~~business strategy could be affected by a number~~members after such locations reopened were significantly below historical levels, thus adversely impacting revenues in our Healthcare segment during the second quarter of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. 2020. We may ~~decide~~face reclosures and/or long-term closures and other operational restrictions with respect to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of ~~the initiatives~~our Healthcare segment’s fitness partner locations for prolonged periods of time due to, among other factors, evolving governmental restrictions including public health directives, quarantine policies, or social distancing measures. Additionally, even if fitness partner locations are open, members may avoid public gathering places because of a perceived risk of infection or risk to health, which could reduce overall demand and adversely impact their use of our services. Because a significantportion of our Healthcare segment revenues from our SilverSneakers program is based on member visits to a fitness partner location, this decrease in member participation has affected and could further adversely affect our business ~~strategy successfully, our operating~~and results ~~may not improve to the extent we anticipate, or at all.~~of operations.

WeConsumer spending generally may ~~fail~~also be negatively impacted by adverse general macroeconomic conditions and reduced consumer confidence, including the impacts of any recession resulting from the COVID-19 pandemic. This may further negatively impact the number of paid subscribers in our Prime Fitness program. In addition, it may negatively impact sales in our Nutrition segment and may cause our Nutrition segment’s direct to ~~realize~~consumer and retail customers to purchase fewer products from us. Any significant reduction in consumer spending caused by COVID-19 and decreased consumer confidence and spending following the ~~anticipated benefits~~pandemic would likely result in a loss of sales and ~~cost savings of the acquisition of Nutrisystem, which could adversely affect the value of~~profits in our ~~Common Stock.~~Nutrition segment and other material adverse effects.

The ~~success~~COVID-19 pandemic also has the potential to significantly impact our Nutrition segment’s supply chain, food manufacturers, distribution centers, or logistics and other service providers. We have experienced delays and some additional costs in fulfilling orders for our Nutrition segment’s products at certain of our warehouses due to some employees of our fulfillment provider testing positive for COVID-19 and could experience similar events or delays at our other warehouses. Additionally, our service providers and their operations may be disrupted, temporarily closed or experience worker shortages, which could result in additional disruptions or delays in shipments of our Nutrition segment’s products.

As a result of the ~~acquisition~~COVID-19 pandemic, including related governmental guidance or requirements, we have implemented a work-from-home policy for our employees, which may negatively impact productivity and cause other disruptions to our business. We closed our corporate offices and/or call centers in Franklin, Tennessee, Fort Washington, Pennsylvania and Chandler, Arizona from mid-March through May and began reopening our corporate offices on a limited basis in June as we continue to prioritize the safety and well-being of ~~Nutrisystem will depend,~~our employees. We have incurred, and may incur in ~~part,~~the future, costs related to implementing our work-from-home policy as well as additional cleaning fees and supplies related to the COVID-19 pandemic.

The full extent of the impact of the COVID-19 pandemic on our ~~ability~~business is highly uncertain and difficult to ~~realize~~predict, as information is rapidly evolving with respect to the ~~anticipated benefits~~duration and ~~cost savings from combining~~severity of the ~~business~~pandemic. At this point, we cannot predict with certainty the duration and severity of ~~Nutrisystem with~~the COVID-19 pandemic or its future impact on our ~~legacy business. Our ability to realize these anticipated benefits and cost savings is subject to certain risks including:~~

~~We cannot provide assurances that Nutrisystem’s~~ business, and our ~~legacy business can be integrated successfully. It is possible that the integration process~~estimates could ~~result~~change in the loss of key employees, the disruption of our ongoing businesses or in unexpected integration issues, higher than expected integration costs, and an overall integration process that takes longer than originally anticipated.

In addition, at times, the attention of certain members of our management and resources may be focused on completion of the integration and diverted from day-to-day business operations, which may disrupt our ongoing business.

~~We may experience difficulties associated with the implementation and/or integration of new businesses, services (including outsourced services), technologies, solutions, or products.~~

We may face difficulties, costs, and delays in effectively implementing and/or integrating acquired businesses, services (including outsourced services), technologies, solutions, or products into our business. Implementing internally-developed solutions and products, and/or integrating newly acquired businesses, services (including outsourced services), and technologies could be time-consuming and may strain our resources. Consequently, we may not be successful in implementing and/or integrating these new businesses, services, technologies, solutions, or products and may not achieve anticipated revenue and cost benefits.future.

The performance of our business (as it could further be affected by the COVID-19 pandemic) and the level of our indebtedness could prevent us from meeting the obligations under our ~~credit agreement~~Credit Agreement or have an adverse effect on our future financial condition, our ability to raise additional capital, or our ability to react to changes in the economy or our industry.

In connection with the consummation of the acquisition of Nutrisystem, on March 8, 2019, we entered ~~into~~ the Credit ~~Agreement with a group of lenders.~~Agreement. As of ~~September~~June 30, ~~2019,~~2020, outstanding debt under the Credit Agreement was ~~$1,084 million~~.$1,012.3 million.

Our ability to service our indebtedness will depend on our ability to generate cash in the future. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to service our indebtedness or to fund other liquidity needs. If there are prolonged or worsening effects of the COVID-19 pandemic, such as long-term closures of our fitness partner locations, we could be unable to generate revenues and cash flows sufficient to conduct our business, service our outstanding debt and comply with the covenants under the Credit Agreement. This could, among other things, exhaust our available liquidity (and ability to access liquidity sources) and/or result in an acceleration of the maturity of a significant portion or all of our then-outstanding debt obligations, which we may be unable to repay or refinance.

The Credit Agreement contains a ~~financial~~Net Leverage Ratio covenant. Given the significant uncertainty relating to the potential impacts of the COVID-19 pandemic on our business going forward, there are potential scenarios under which we could fail to comply with the Net Leverage Ratio covenant ~~that requires us to maintain specified maximum ratios or levels of consolidated total net debt to EBITDA, calculated as provided~~contained in ~~the~~our Credit Agreement. Our failure to comply with such covenant would result in an event of default that, if not waived, could have a material adverse effect on our financial condition, results of operations or debt service capability. The Credit Agreement also contains various other affirmative and negative covenants customary for financings of this type that, subject to certain exceptions, impose restrictions and limitations on ~~our~~us and certain of our subsidiaries with respect to, among other things, indebtedness; liens; negative pledges; restricted payments (including dividends, distributions, buybacks, redemptions, repurchases with respect to equity interests, and payments, redemptions, retirements, purchases, acquisitions, defeasance, exchange, conversion, cancellation or termination with respect to junior lien, subordinated or unsecured debt); restrictions on subsidiary distributions; loans, advances, guarantees, acquisitions and other investments; mergers and other fundamental changes; sales and other dispositions of assets (including equity interests in subsidiaries); sale/leaseback transactions; transactions with affiliates; conduct of business; amendments and waivers of organizational documents and material junior debt agreements; and changes to fiscal year.

Our indebtedness could adversely affect our future financial condition or our ability to react to changes in the economy or industry by, among other things:

If our customers experience financial distress, or seek to change or delay payment terms, it could negatively affect our financial position and results.

At any given time, one or more of our customers may experience financial difficulty, file for bankruptcy protection or go out of business. Unfavorable economic and financial conditions, such as the current events surrounding the COVID-19 pandemic, could result in an increase in our customers’ financial difficulties that then affect us. The direct impact on us could include reduced revenues and write-offs of accounts receivable and negatively impact our operating cash flow. While we currently cannot estimate what those effects will be, if they are severe, the indirect impact could include impairments of intangible assets and reduced liquidity, among others.

We are reviewing strategic alternatives for our Nutrition business unit, but there can be no assurance that we will be successful in identifying or consummating any strategic alternatives, that strategic alternatives will yield additional value for stockholders, or that exploration of strategic alternatives for our Nutrition business unit will not adversely impact the Company.

On May 6, 2020, we announced we are exploring strategic alternatives relating to our Nutrition business unit, including a potential transaction. If we determine to divest of the Nutrition business unit, we can give no assurance as to whether we will be able to secure a buyer for our Nutrition business unit or, if we do so, whether such divestiture will be at a price or on terms that are favorable to us, and we may incur a loss on disposal. Speculation regarding any developments related to the review of strategic alternatives for our Nutrition business unit and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

Our exploration of strategic alternatives for our Nutrition business unit could result in management distraction, incurrence of significant transaction expenses, failure to retain or attract key personnel, vendors or customers, or exposure to potential litigation. If we are unable to mitigate these or other potential risks related to the uncertainty caused by our exploration of strategic alternatives for our Nutrition business unit, it may disrupt our business and could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We may not be able to realize the anticipated benefits from a divestiture of our Nutrition business unit. There can be no assurance that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in our current stock price. Further, the Board may determine to suspend or terminate the exploration of strategic alternatives for our Nutrition business unit at any time due to various factors. Any potential transaction or other outcome of this process is also dependent upon a number of factors that may be beyond our control, including among other factors, market conditions (including the impact of the COVID-19 pandemic), industry trends, regulatory limitations and the interest of third parties in our business.

Our business strategy relating to the development and introduction of new products and services exposes us to risks such as limited customer and/or market acceptance and additional expenditures that may not result in additional net revenue.

An important component of our business strategy is to focus on new products and services that enable us to provide immediate value to our customers. We cannot predict whether customers and/or the market will accept these new products and services, and if we fail to execute successfully on this strategy or to adapt this strategy as market conditions evolve, our ability to grow revenue and our results of operations may be adversely affected.

If we fail to successfully implement our business strategy, our financial performance and our growth could be materially and adversely affected.

In addition to the risks set forth above, implementation of our business strategy could be affected by a number of factors beyond our control, such as epidemics and pandemics (including the responses of governmental authorities to contain such epidemics and pandemics), increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve to the extent we anticipate, or at all.

We may experience difficulties associated with the implementation and/or integration of new businesses, services (including outsourced services), technologies, solutions, or products.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly, and changes in LIBOR reporting practices could lead to an increase in the cost of our indebtedness and adversely affect our results of operations.

Borrowings under our Credit Agreement are at variable rates of interest and expose us to interest rate risk. Interest rates are currently at historically low levels, but if interest rates increase, our debt service obligations with respect to our variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash flows would correspondingly decrease.

To mitigate our exposure to future interest rate volatility with respect to our variable rate indebtedness, we have entered into interest rate swaps and may in the future enter into additional interest rate swaps, which involve the exchange of floating for fixed rate interest payments. Considering hedging gains and losses and cash settlement costs, we may not elect to maintain such interest rate swaps, and any swaps may not fully mitigate our interest rate risk.

In addition, a transition away from LIBOR as a benchmark for establishing the applicable interest rate may adversely affect our variable rate debt and interest rate swaps. The Financial Conduct Authority of the United Kingdom has announced that by the end of calendar year 2021 it will no longer require LIBOR submissions, resulting in the possible unavailability or lack of suitability of LIBOR as a benchmark rate. While our borrowing arrangements provide for alternative base rates as well as a method for selecting a benchmark replacement for LIBOR, the consequences of the possibility of LIBOR becoming unavailable or not suitable cannot be entirely predicted at this time. Use of an alternative base rate or a benchmark replacement for LIBOR as a basis for calculating interest with respect to our outstanding variable rate indebtedness or interest rate swap agreements could lead to an increase in the interest we pay and a corresponding increase in the cost of such indebtedness, and could affect our ability to refinance some or all of our existing indebtedness or otherwise have a material adverse impact on our business, financial condition and results of operations.

Changes in macroeconomic conditions and certain market risks may adversely affect our business.

Economic difficulties and other macroeconomic conditions (including any downturn or recession caused by the COVID-19 pandemic) could reduce the demand and/or the timing of purchases for certain of our services from customers and potential customers. In addition, changes in economic conditions could create liquidity and credit constraints. We cannot assure you that we would be able to secure additional financing if needed and, if such funds were available, that the terms and conditions would be acceptable to us.

We have a significant amount of goodwill and intangible assets, the value of which could become further impaired.

We have recorded significant portions of the purchase price of certain acquisitions as goodwill and/or intangible assets. ~~At September 30, 2019, we had approximately $791.7 million and $951.7million of goodwill and intangible assets, respectively.~~ We review goodwill and intangible assets not subject to amortization for impairment on an annual basis (during the fourth quarter) or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. In the fourth quarter of 2019, we recorded impairment losses of $240.0 million and $137.1 million related to the Nutrisystem tradename and goodwill, respectively. The COVID-19 pandemic has had and is having an adverse impact on the overall economy, resulting in rapidly changing market and economic conditions that have impacted the Company. In March 2020, we experienced a significant decline in the Company’s market capitalization and, as discussed above under Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview”, in the actual and forecasted operating results of our Healthcare segment, in addition to the unfavorable change in market conditions. As a result, management concluded that there were triggering events during the first quarter of 2020 necessitating an impairment evaluation of our goodwill and indefinite-lived intangible assets. During the first quarter of 2020, we recorded an impairment loss of $199.5 million, including $80.0 million related to the Nutrisystem tradename and $119.5 million related to goodwill allocated to the Nutrition segment. At June 30, 2020, we had approximately $535.1 million and $593.5 million of goodwill and intangible assets, respectively, remaining. Following the impairment loss, as of June 30, 2020, there is no excess of estimated fair value over carrying value (“headroom”) for the Nutrition reporting unit. If we determine that the carrying values of our goodwill and/or intangible assets ~~are~~should be further impaired, we may incur aadditional non-cash ~~charge~~charges to earnings, which could have a material adverse effect on our results of operations for the period in which the additional impairment occurs.

A failure of our information technology or systems could adversely affect our business.

Our ability to deliver our products and services depends on effectively using information technology. We rely upon our information technology and systems, employees, and third parties for operating and monitoring all major aspects of our business. These technologies and systems and, therefore, our operations could be damaged or interrupted by natural disasters, power loss, network failure, improper operation by our employees, data privacy or security breaches, computer viruses, computer hacking, network penetration or other illegal intrusions, epidemics or pandemics (such as the COVID-19 pandemic), or other unexpected events. Any disruption in the operation of our information technology or systems, regardless of the cause, could adversely impact our operations, which may adversely affect our financial condition, results of operations and cash flows.

A cybersecurity incident could result in the loss of confidential data, give rise to remediation and other

expenses, expose us to liability under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.

The nature of our business involves the receipt, storage and use of personal data about the participants in our programs, including individually identifiable health information, as well as employees and customers. Additionally, we rely upon third parties that are not directly under our control to store and use portions of that personal data as well. The secure maintenance of this and other confidential information or other proprietary information is critical to our business operations. To protect our information systems from attack, damage and unauthorized use, we have implemented multiple layers of security, including technical safeguards, processes, and our people. Our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, threats from malicious persons and groups, new vulnerabilities, technology failures, and advanced attacks against information systems create risk of cybersecurity incidents. We cannot provide assurance that we or our third-party vendors or other service providers will not be subject to cybersecurity incidents, which may result in unauthorized access by third parties, loss, misappropriation, disclosure or corruption of customer, employee, or our information; member

personal health information; or other data subject to privacy laws. In addition, COVID-19 may have an adverse impact on our information technology systems and our ability to securely preserve confidential information, including as a result of telecommuting issues associated with our employees working remotely. Such cybersecurity incidents or delays in responding to or remedying damage caused by such incidents may lead to a disruption in our systems or business, costs to modify, enhance, or remediate our cybersecurity measures, liability under privacy, security and consumer protection laws or litigation under these or other laws, including common law theories, and subject us to enforcement actions, fines, regulatory proceedings or litigation against us, damage to our business reputation, a reduction in participation and sales of our products and services, and legal obligations to notify customers or other affected individuals about an incident, which could cause us to incur substantial costs and negative publicity, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.

As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices remain a priority for us. We may be required to expend significant additional resources in our efforts to modify or enhance our protective measures against evolving threats or to investigate and remediate any cybersecurity vulnerabilities.

Our business is subject to changing privacy and security laws, rules and regulations, including HIPAA, the Payment Card Industry Data Security Standards, the Telephone Consumer Protection Act and other state privacy regulations, which impact our operating costs and for which failure to adhere could negatively impact our business.

Our business is subject to various privacy and data security laws, regulations, and codes of conduct that apply to our ~~various~~ business units, ~~(e.g.,~~which may include the rules and regulations of the Payment Card Industry Data Security Standards and the Telephone Consumer Protection ~~Act)~~Act (“TCPA”). ~~These~~In addition, we are Health Information Trust Alliance (“HITRUST”) Common Security Framework certified, which is an industry operating standard applied to our data security practices. Some of these state laws and regulations may be inconsistent across jurisdictions and ~~are~~ subject to evolving and differing (sometimes conflicting) ~~interpretations.~~interpretations and applications. While we are using internal and external resources to monitor compliance with and to continue to modify our data processing practices and policies in order to comply with evolving privacy laws, relevant regulatory authorities could determine that our data handling practices fail to address all the requirements of certain new laws, which could subject us to penalties and/or litigation. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws as well as new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions, thereby further impacting our business. For example, ~~in June 2018, the State of California passed~~ the California Consumer Privacy Act of 2018 (“CCPA”), ~~which takes~~went into effect on January 1, ~~2020. The new law~~2020, and it applies broadly to information that identifies or is associated with any California household or individual, and compliance with the new law requires that we implement several operational changes, including processes to respond to individuals’ data access and deletion requests. Failure to comply with the CCPA may result in attorney general enforcement action and damage to our reputation. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. We may also be exposed to litigation, regulatory fines, penalties or other sanctions if the personal, confidential or proprietary information of our customers is mishandled or misused by any of our suppliers, counterparties or other third parties, or if such third-parties do not have appropriate controls in place to protect such personal, confidential or proprietary information. Additionally, the Federal Trade Commission (“FTC”) and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination and security of data. The obligations imposed by the CCPA and other similar laws that may be enacted at the federal and state level may require us to modify our business practices and policies and to incur substantial expenditures in order to comply.

In order to be successful, we must attract, engage, retain and integrate key employees and have adequate succession plans in place, and failure to do so could have an adverse effect on our ability to manage our business.

Our success depends, in large part, on our ability to attract, engage, retain and integrate qualified executives and other key employees throughout all areas of our business. Identifying, developing internally or hiring externally, training and retaining ~~highly-skilled~~highly skilled managerial and other personnel are critical to our future, and competition for experienced employees can be intense. Failure to successfully ~~hire~~recruit executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. The loss of services of any

key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring may harm our

business and results of operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key newly hired employees could adversely affect our business and results of operations.

We face competition for staffing, which may increase our labor costs and reduce profitability.

We compete with other healthcare and services providers in recruiting qualified management, including executives with the required skills and experience to operate and grow our business, and staff personnel for the day-to-day operations of our business. These challenges may require us to enhance wages and benefits to recruit and retain qualified management and other professionals. Difficulties in attracting and retaining qualified management and other professionals, or in controlling labor costs, could have a material adverse effect on our profitability.

We are or may become a party to litigation that could potentially force us to pay significant damages and/or harm our reputation.

We are subject to certain legal proceedings, which potentially involve large claims and significant defense costs (see Part II, Item 1. "Legal Proceedings" in this report). These legal proceedings and any other claims that we may face in the future, whether with or without merit, could result in costly litigation, and divert the time, attention, and resources of our management. The coverage limits of our insurance policies may not be adequate to cover all such claims and some claims may ~~notl~~not be covered by insurance. ~~Although~~Additionally, insurance coverage with respect to some claims against us or our directors and officers may not be available on terms that would be favorable to us, or the cost of such coverage could increase in the future. Further, although we believe that we have conducted our operations in compliance with applicable statutory and contractual requirements and that we have meritorious defenses to outstanding claims, it is possible that resolution of these legal matters could have a material adverse effect on our results of operations. In addition, legal expenses associated with the defense of these matters may be material to our results of operations in a particular financial reporting period.

Third parties may infringe on our brands, trademarks and other intellectual property rights, which may have an adverse impact on our business.

We currently rely on a combination of trademark and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights, including our brands. If we fail to successfully enforce our intellectual property rights, the value of our brands, services and products could be diminished and our business may suffer. Our precautions may not prevent misappropriation of our intellectual property. Any legal action that we may bring to protect our brands and other intellectual property could be unsuccessful and expensive and could divert management’s attention from other business concerns. In addition, legal standards relating to the validity, enforceability and scope of protection of intellectual property, especially in Internet-related businesses, are uncertain and evolving. We cannot assure you that these evolving legal standards will sufficiently protect our intellectual property rights in the future.

Third parties may make claims against us alleging infringement of their intellectual property rights. Any intellectual property claims, regardless of merit, could be time-consuming and expensive to litigate or settle and could significantly divert management’s attention from other business concerns. In addition, if we were unable to successfully defend against such claims, we may have to pay damages, stop selling the service or product or stop using the software, technology or content found to be in violation of a third party’s rights, seek a license for the infringing service, product, software, technology or content or develop alternative non-infringing services, products, software, technology or content. If we cannot license on reasonable terms, develop alternatives or stop using the service, product, software, technology or content for any infringing aspects of our business, we may be forced to limit our service and product offerings. Any of these results could reduce our revenue and our ability to compete effectively, increase our costs or harm our business.

Damage to our reputation could harm our business, including our competitive position and business prospects.

Our ability to attract and retain customers, members and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including employee misconduct, cyber security breaches, unethical behavior, litigation or regulatory outcomes, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act ~~("FCPA"~~(the “FCPA”) and similar anti-bribery laws of other countries in which we provided services prior to the sale of our total population health services ~~("TPHS"~~(“TPHS”) business.

Because of the international operations that we previously conducted as part of our TPHS business that we sold to Sharecare, Inc. in July 2016, we could be adversely affected by violations of the FCPA and similar anti-bribery laws of other countries in which we provided services prior to the sale. The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials or other third parties for the purpose of obtaining or retaining business or gaining any business advantage. While our policies mandated compliance with these anti-bribery laws, we cannot provide assurance that our internal control policies and procedures always protected us from reckless or criminal acts committed by our employees, contractors or agents. Failure to comply with the FCPA and similar legislation prior to the sale of our TPHS business could result in the imposition of civil or criminal fines and penalties and could disrupt our business and adversely affect our results of operations, cash flows and financial condition.

A significant percentage of Healthcare segment revenues is derived from health plan customers.

A significant percentage of our Healthcare segment revenues is derived from health plan customers. The health plan industry may continue to consolidate, and we cannot assure you that we will be able to retain health plan customers, or continue to provide our products and services to such health plan customers on terms at least as favorable to us as currently provided, if they are acquired by other health plans that already participate in competing programs or are not interested in our programs. Increasing vertical integration efforts involving health plans and healthcare providers or entities that provide wellness services may increase these challenges. Our health plan customers that are part of larger healthcare enterprises may have greater bargaining power, which may lead to further pressure on the prices for our products and services. In addition, a reduction in the number of covered lives enrolled with our health plan customers or in the payments we receive could adversely affect our results of operations. Our health plan customers are subject to continuing competition and reduced reimbursement rates from governmental and private sources, which could lead current or prospective customers to seek reduced fees or choose to reduce or delay the purchase of our services. Finally, health plan customers could ~~attempt to~~ offer (and in some cases are offering) services themselves that compete directly with our offerings, stop providing our offerings to certain or all of their members (as one of our customers, United Healthcare, has done), or offer fitness benefits in addition to SilverSneakers and Prime Fitness, which could adversely affect our business and results of operations.

We currently derive a significant percentage of our Healthcare segment revenues from three customers.

For the year ended December 31, ~~2018, Humana, United Healthcare, and the Blue Cross Blue Shield Association (“BCBSA”)~~2019, three customers each comprised more than 10%, and together comprised approximately 45%, of our ~~revenues from continuing operations.~~Healthcare segment’s revenues. Our primary contracts with two of these customers continue through December 31, 2022, and our primary contract with ~~Humana was renewed in 2018 and~~the third customer continues through December 31, ~~2022. The term of our contract with United Healthcare continues through December 31, 2020. Our primary contract with BCBSA continues through December 31, 2022.~~2021. The loss or restructuring of a contract with ~~Humana, United Healthcare, BCBSA,~~any of these three customers or any other significant customers of our Healthcare segment could have a material adverse effect on our business and results of operations. None of these three contracts allows ~~Humana, United Healthcare, or BCBSA~~the customer to terminate for convenience prior to the expiration of the contract.

In 2018 and 2019, United Healthcare discontinued offering SilverSneakers to its individual Medicare Advantage beneficiaries in certain states and instead provided those beneficiaries a fitness benefit offered by its wholly-owned subsidiary Optum, while continuing to offer SilverSneakers to its group Medicare Advantage members in all 50 states. Revenue from United Healthcare is expected to be in a range of $60 million to $62 million in 2019, approximately one-third of which is expected to be earned from its individual Medicare Advantage business. We expect that beginning in 2020 United Healthcare will offer SilverSneakers to its group Medicare Advantage members and will offer SilverSneakers to a portion of the remaining individual Medicare Advantage beneficiaries.

Our inability to renew and/or maintain contracts with our Healthcare segment customers and/or fitness partner locations under existing terms or restructure these contracts under favorable terms could adversely affect our business and results of operations.

If our Healthcare segment customers and/or fitness partner locations choose not to renew their contracts with us (which occurs from time to time), our business and results of operations could be materially adversely affected. Loss of a significant fitness partner or health plan customer or a reduction in a health plan customer's enrolled lives (including as a result of increased unemployment and the resulting loss of health insurance coverage) could have a material adverse effect on our business and results of operations. In addition, a restructuring of a contract with a health plan customer and/or fitness partner on terms that aren’t favorable to us could adversely affect our business and results of operations. Moreover, the businesses of our fitness partner locations have been and will likely continue to be adversely affected by the closure of locations, any public health directives, or social distancing measures applicable upon reopening of locations and reduced overall consumer demand for fitness center use as a result of the COVID-19 pandemic. If a significant portion of our fitness partner network is unable to return to normal operations within a reasonable period of time as a result of financial or operational stresses brought on by the COVID-19 pandemic, we may be unable to make alternative arrangements with substitute fitness partners on favorable terms or at all.

Reductions in Medicare Advantage health plan reimbursement rates or changes in plan designs may negatively impact our Healthcare segment business and results of operations.

A significant portion of our Healthcare segment revenue is indirectly derived from the monthly premium payments paid by the U.S. Department of Health and Human Services to our health plan customers for services they provide to Medicare Advantage beneficiaries. As a result, our results of operations are, in part, dependent on government funding levels for Medicare Advantage programs. An executive order issued in October 2019 seeks to encourage innovative Medicare Advantage benefit structures and plan designs, including through changes to supplemental benefits. Any changes that limit or reduce Medicare Advantage reimbursement levels, such as reductions in or limitations of reimbursement amounts or rates under these programs, reductions in funding of these programs, expansion of benefits without adequate funding, elimination of coverage for certain benefits, or elimination of coverage affecting the services that we provide, could have a material adverse effect on our Healthcare segment health plan customers, and as a result, on our business and results of operations.

Our results of operations could be adversely affected by severe or unexpected weather, ~~health~~ epidemics, pandemics or outbreaks of disease.

Adverse weather conditions or other extreme changes in the weather may cause people to refrain, or prevent people, from visiting fitness partner locations and using our Healthcare segment services. Additionally, widespread health epidemics or outbreaks of disease, such as influenza or COVID-19, may cause members to avoid public gathering places and negatively impact their use of our services. As some of the fees that we charge our customers are based on member participation, a decrease in member participation could adversely affect our business and results of operations.

Compliance with existing or newly adopted federal and state laws and regulations or new or revised interpretations of such requirements could adversely affect our results of operations or may require us to spend substantial amounts, and the failure to comply with applicable laws and regulations could subject us to penalties or negatively impact our ability to provide services.

Our Healthcare segment customers are subject to considerable state and federal government regulation, and a substantial majority of our Healthcare segment business involves providing services to Medicare Advantage beneficiaries. As a result, we are subject directly to various federal laws and regulations, including the federal False Claims Act, billing and reimbursement requirements and other provisions related to fraud and abuse. ~~The Centers for Medicare & Medicaid Services is in the process of expanding its Recovery Audit Contractor program for Medicare Advantage, which may result in increased government enforcement. Further,~~In addition, our contracts with Medicare Advantage plans require us to comply with a number of regulatory provisions and to permit these health plan customers to perform compliance audits of our processes and programs. Many of these regulations are vaguely written and subject to differing interpretations that may, in certain cases, result in unintended consequences that could impact our ability to effectively deliver services. Further, we are required to comply with most requirements of the HIPAA privacy and security laws and regulations and may be subject to criminal or civil penalties for violations of these regulations. Certain of our services, including health utilization management and certain claims payment functions, require licensure and may be regulated by government agencies. We are subject to a variety of legal requirements in order to obtain and maintain such licenses, but little guidance is available to determine the scope of some of these requirements.

We continually monitor the extent to which federal and state legislation and regulations govern our operations. New federal or state laws or regulations or new interpretations of existing requirements that affect our operations could have a material adverse effect on our results of operations. If we are found to have violated applicable laws, to have caused any of our Healthcare segment customers to submit false claims or make false statements, or to have failed to comply with our contractual compliance obligations, we could be required to restructure our Healthcare segment operations, be subject to contractual penalties, including termination of our Healthcare segment customer agreements, and be subject to significant civil and criminal penalties.

Healthcare reform efforts may result in a reduction to our revenues from government health programs and private insurance companies or otherwise directly or indirectly impact our business.

The healthcare industry is subject to various political, regulatory, scientific, and technological influences. Efforts at federal and state levels of government have resulted in laws and regulations intended to effect significant change within the healthcare system. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), the most prominent of these efforts, affects coverage, delivery, and reimbursement of healthcare services. Among other effects, several of its provisions may increase the costs and/or reduce the revenues of our customers or prospective customers. For example, the ACA eliminates pre-existing condition exclusions by commercial health plans, bans annual benefit limits, and mandates minimum medical loss ratios for health plans. On April 27, 2020, the United States Supreme Court held that Congress owes health insurers approximately $12 billion as startup costs incurred in the first three years of the ACA. Since this decision, judgments and stipulations for judgment have been entered for individual insurers identifying the amount owed by the federal government.

However, there is substantial uncertainty regarding the net effect and future of the ACA. The presidential administration and Congress have made significant changes to the ACA, its implementation and its interpretation. The president signed an executive order that directs agencies to minimize “economic and regulatory burdens” of the ACA. Final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential benefits mandated by the ACA. Further, effectiveEffective January 2019, Congress eliminated the penalty associated with the ACA’s individual mandate. As a result, a federal court in Texas ruled in December 2018 that ~~because the penalty associated with~~ the individual mandate was ~~eliminated,~~unconstitutional and determined that the ~~entire~~rest of the ACA was, ~~unconstitutional. However,~~therefore, invalid. In December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate but remanded for further consideration of how this affects the rest of the law. The law remains in effect pending appeal. It is possible that the reforms imposed by the ACA or uncertainty regarding significant changes or court challenges to the law will adversely affect the profitability of our Healthcare segment customers and cause our Healthcare segment customers or prospective customers to reduce or delay the purchase of our services or to demand reduced fees. Because of this uncertainty and many other variables, including the ACA’s complexity and the difficulty of predicting the impact of changes on other healthcare industry participants and the ultimate outcome of court challenges, we are unable to predict all of the ways in which the ACA could impact us. Furthermore, we could also be impacted by ~~future~~other legislative and regulatory healthcare reform initiatives. For example, beginning in 2020, the Creating High-quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act ~~will allow~~of 2018 allows Medicare Advantage plans to cover supplemental benefits that are not primarily health-related, but that have the reasonable expectation of improving or maintaining health. ~~Members~~Additionally, some presidential candidates and members of Congress have proposed measures that would expand government-sponsored coverage, including single-payor ~~proposals.~~proposals (often referred to as "Medicare for All"). Further, the outcome of the 2020 federal election and its potential impact on health reform efforts is unknown.

Our Nutrition segment's future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing expenditures and our ability to select effective markets and media in which to advertise.

Our Nutrition segment's future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing expenditures, including our ability to:

Our planned marketing expenditures for our Nutrition segment may not result in increased revenue or generate sufficient levels of brand name and program awareness. We may not be able to manage our Nutrition segment's marketing expenditures on a cost-effective basis whereby our Nutrition segment customer acquisition costs may exceed the contribution profit generated from each additional customer.

Our Nutrition segment relies on third parties to provide it with adequate food supply, freight and fulfillment and Internet and networking services, the loss or disruption of any of which could cause our revenue, earnings or

Food Manufacturers and Other Suppliers. Our Nutrition segment relies solely on third-party manufacturers to supply all of the food and other products we sell as well as packaging materials. If we are unable to obtain sufficient quantity, quality and variety of food, other products and packaging materials in a timely and low-cost manner from our manufacturers, we will be unable to fulfill our Nutrition segment customers’ orders in a timely manner, which may cause us to lose revenue and market share or incur higher costs, as well as damage the value of our brands.

Freight and Fulfillment. Currently, all of our Nutrition segment customer order fulfillment is handled by one third-party provider. Also, almost all of our direct to consumer Nutrition segment customer orders are shipped by one third-party provider and almost all of our orders for Nutrition segment retail programs were shipped by another third-party provider. Should these providers be unable to service our needs for even a short duration, our revenue and business could be adversely affected. Additionally, the cost and time associated with replacing these providers on short notice would add to our costs. Any replacement fulfillment provider would also require startup time, which could cause us to lose sales and market share.

Internet and Networking. Our Nutrition segment business also depends on a number of third parties for Internet access and networking, and we have limited control over these third parties. Should our Nutrition segment's network connections go down, our ability to fulfill orders would be delayed. Further, if our Nutrition segment's websites or call center become unavailable for a noticeable period of time due to Internet or communication failures, our business could be adversely affected, including harm to our brands and loss of sales.

Therefore, we are dependent on ~~maintaining good relationships with~~ these third parties. The services we require from these parties may be disrupted by a number of factors, ~~associated with their businesses,~~ including the following:

Further, the COVID-19 pandemic (or another regional or global epidemic or pandemic, depending upon its location, duration and severity), could severely affect our Nutrition segment’s business, including as a result of impacts associated with preventive and precautionary measures that we and other businesses and governments may take. A regional or global epidemic or pandemic could also adversely affect our business by disrupting the operations of our call center, creating negative popular sentiment among consumers of delivered food, or by disrupting or delaying our third-party providers' ability to, among other things (i) supply the products that we sell as well as packaging materials, (ii) fulfill and deliver Nutrition segment customer orders and (iii) provide Internet and networking services. In addition, any significant change in the pricing or payment terms that we have with our third-party providers could adversely affect our liquidity. The COVID-19 pandemic has caused, and may cause in the future, delays in fulfilling orders for our Nutrition segment’s products at our warehouses due to employees of our fulfillment provider testing positive for COVID-19. Due to the COVID-19 pandemic, we have incurred, and may incur in the future, charges related to increased labor rates and overtime for employees of our fulfillment provider, as well as additional shipping and related charges if it is necessary to transfer the fulfillment of certain orders to other warehouses that are farther from the customer’s delivery destination.

We may be subject to claims that our Nutrition segment personnel are unqualified to provide proper weight loss advice.

We offer counseling options from weight loss counselors, registered dietitians and certified diabetes educators with varying levels of training. We may be subject to claims from our Nutrition segment customers alleging that our personnel lack the qualifications necessary to provide proper advice regarding weight loss and related topics. We may also be subject to claims that our Nutrition segment personnel have provided inappropriate advice or have inappropriately referred or failed to refer customers to health care providers for matters other than weight loss. Such claims could result in lawsuits, damage to our reputation and divert management’s attention from our business, which would adversely affect our business.

Our Nutrition segment's weight loss programs do not include medical treatment or medical advice, and we do not engage physicians or nurses to monitor the progress of our Nutrition segment customers. Many people who are overweight suffer from other physical conditions, and our target customers could be considered a high-risk population. A Nutrition segment customer who experiences health problems could allege or bring a lawsuit against us on the basis that those problems were caused or worsened by participating in our weight management programs or by consuming one or more of our individual products. For example, our Nutrition segment's predecessor businesses suffered substantial losses due to health-related claims and related publicity. If we become subject to any such claims, while we would defend ourselves against such claims, we may ultimately be unsuccessful in our

defense. Also, defending ourselves against such claims, regardless of their merit and ultimate outcome, would likely be lengthy and costly, and adversely affect our results of operations. Further, our general liability insurance may not cover claims of these types.

The weight management industry is highly competitive. If any of our competitors or a new entrant into the market with significant resources pursues a weight management program similar to ours, our Nutrition segment business could be significantly affected.

Competition is intense in the weight management industry and we must remain competitive in the areas of program efficacy, price, taste, customer service and brand recognition. The competitors of our Nutrition segment include companies selling pharmaceutical products and weight loss programs, digital tools and wearable trackers, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements. Some of our Nutrition segment's competitors are significantly larger than we are and have substantially greater resources. Our Nutrition segment business could be adversely affected if someone with significant resources decided to imitate our weight management programs. For example, if a major supplier of pre-packaged foods decided to enter this market and made a substantial investment of resources in advertising and training diet counselors, our Nutrition segment business could be significantly affected. Any increased competition from new entrants into our Nutrition segment's industry or any increased success by existing competition could result in reductions in our Nutrition segment sales or prices, or both, which could have an adverse effect on our business and results of operations.

Our Nutrition segment has agreements with certain third-party retailers. Under these agreements, these third parties control when and how often our Nutrition segment products are offered, and we are not guaranteed any minimum level of sales. Our Nutrition segment's largest third-party retailer has indicated to us that they will be reducing orders for, and the promotion of, our Nutrition segment products in 2020. If any third party elects not to renew their agreement with us or further reduces orders for our Nutrition segment products or the promotion of our Nutrition segment products, our revenue will suffer.

In addition, our third-party retailers may decide to stop selling our Nutrition segment products upon written notice, which may result in an increased level of reclamation claims. In the event any retailer terminates its relationship with us and the level of reclamation claims exceeds the estimated amount reserved on our balance sheet at the time of sale to the retailer, we will have to record an expense for the excess claims, which could adversely impact our results of operations and financial condition. Additionally, in certain instances, we could be prohibited from selling our Nutrition segment products through competitors of these third parties for a specified time after the termination of the agreements.

Furthermore, some retailers are experiencing fewer than usual customer visits at their locations as a result of the COVID-19 pandemic, which has adversely affected and could continue to adversely affect the sales of our products at those retailers.

On an ongoing basis, many existing and potential providers of weight loss solutions, including many pharmaceutical firms with significantly greater financial and operating resources than we have, are developing new products and services. The creation of a weight loss solution, such as a drug therapy, that is perceived to be safe, effective and “easier” than a portion-controlled meal plan would put our Nutrition segment at a disadvantage in the marketplace and our results of operations could be negatively affected.

If our Nutrition segment’s efforts to attract and retain customer subscriptions are not successful, our business will be adversely affected.

Our Nutrition segment’s ability to continue to attract customer subscriptions will depend in part on our ability to consistently provide customers with compelling food choices that are desirable in taste and quality, effectively market our products, and offer convenience and value to our customers. The relative offerings, pricing, and other factors of our Nutrition segment’s competitors may adversely impact our ability to attract and retain customer subscriptions. If our Nutrition segment’s customers do not perceive our products to be of value, we may not be able to attract and retain customers. We must continually add new customer subscriptions both to replace canceled subscriptions and to grow our business beyond our current customer base. Further, if excessive numbers of our Nutrition segment’s customers cancel their subscriptions, we may be required to incur significantly higher marketing expenditures than we currently anticipate to replace these customers with new customers, and our results of operations may be adversely affected.

Our Nutrition segment's competitors may pursue litigation against us based on our advertising or other marketing practices regardless of its merit and chances of success, especially if we engage in comparative advertising, which includes advertising that directly or indirectly mentions a competitor or a competitor’s weight loss program in comparison to our Nutrition segment programs. While we would defend ourselves against any such claims, our defense may ultimately be unsuccessful. Also, defending against such claims, regardless of their merit and ultimate outcome, may be lengthy and costly, strain our resources and divert management’s attention from their core responsibilities, which would have a negative impact on our business.

We have launched and expect to continue to launch new weight loss and nutrition programs and brands which may not be successful due to the failure of such programs or brands to achieve anticipated levels of market acceptance, which could adversely affect our Nutrition segment business, financial condition and results of operations.

There are a number of risks inherent in any new program or brand introduction, which could prevent us from achieving revenue growth and increasing our Nutrition segment's overall market share in the commercial weight loss ~~market.~~and nutrition markets. Any new program or brand may fail to achieve the anticipated level of market acceptance or appeal to customer tastes and preferences. In addition, introduction costs, including product testing and marketing, may be greater than anticipated. If the new program or brand is not successful or falls short of anticipated market acceptance, we may be adversely affected by continued expenses and the diversion of management time to this initiative. Any or all of such events could have adverse effects on our business, financial condition and results of operations.

If we do not continue to receive referrals from existing Nutrition segment customers, our Nutrition segment's customer acquisition cost may increase.

We rely on word-of-mouth advertising for a portion of our new Nutrition segment customers. If our brands suffer or the number of customers acquired through referrals drops due to other circumstances, our costs associated with acquiring new Nutrition segment customers and generating revenue will increase, which will, in turn, have an adverse effect on our profitability.

We use third-party marketing vendors to promote our Nutrition segment products. If the spokespersons affiliated with the third-party marketing vendors suffer adverse publicity or elect to not renew, our revenue could be adversely affected.

Our Nutrition segment's marketing strategy depends in part on celebrity spokespersons, as well as customer spokespersons, to promote our weight loss programs. Any of these spokespersons may become the subject of adverse news reports, negative publicity or otherwise be alienated from a segment of our Nutrition segment customer base, whether weight loss related or not. If so, such events may reduce the effectiveness of his or her endorsement and, in turn, adversely affect our revenue and results of operations. Additionally, if a spokesperson elects not to renew their agreement with us, our revenue may suffer.

Our Nutrition segment programs feature frozen and ready-to-go food selections, which we believe offer convenience and value to our customers. Our continued success depends, to a large degree, upon the continued popularity of our Nutrition segment programs versus various other weight loss, weight management and fitness regimens, such as low carbohydrate diets, appetite suppressants and diets featured in the published media. Changes in customer tastes and preferences away from our frozen or ready-to-go food and support and counseling services, and any failure to provide innovative responses to these changes, may have a materially adverse impact on our business, financial condition, operating results and cash flows.

Our success is also dependent on our food innovation including maintaining a robust array of food items and improving the quality of existing items. If we do not continually expand our food items or provide customers with items that are desirable in taste and quality, our business could be adversely impacted.

The seasonal nature of the business of our Nutrition segment could cause our operating results to fluctuate.

The business of our Nutrition segment is seasonal, with revenue generally greatest (and advertising expenses generally highest) in the first calendar quarter, also known as diet season. Weak performance during diet season could negatively impact our Nutrition segment’s performance for the remainder of the year. This seasonality could cause the market price of our Common Stock to fluctuate as the results of an interim financial period may not be indicative of our full year results. Seasonality also impacts relative revenue and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis.

The weight loss industry is subject to adverse publicity, which could harm our Nutrition segment business.

The weight loss industry receives adverse publicity from time to time, and the occurrence of such publicity could harm us, even if the adverse publicity is not directly related to us. In the early 1990s, our Nutrition segment's predecessor businesses were subject to extremely damaging adverse publicity relating to a large number of lawsuits alleging that the ~~Nutrisystem®~~Nutrisystem weight loss program in use at that time led to gall bladder disease. This publicity was a factor that contributed to the bankruptcy of our Nutrition segment's predecessor businesses in 1993.

In addition, our Nutrition segment's predecessor businesses were severely impacted by significant litigation and damaging publicity related to their customers’ use of fen-phen as an appetite suppressant, which the FDA ordered withdrawn from the market in September 1997. The significant decline in business resulting from the fen-phen problems caused our Nutrition segment's predecessor businesses to close all of their company-owned weight loss centers.

Congressional hearings about practices in the weight loss industry have also resulted in adverse publicity and a consequent decline in the revenue of weight loss businesses. Future research reports or publicity that is perceived as unfavorable or that question certain weight loss programs, products or methods could result in a decline in our revenue. Because of our dependence on customer perceptions, adverse publicity associated with illness or other undesirable effects resulting from the consumption of our Nutrition segment products or similar products by competitors, whether or not accurate, could also damage customer confidence in our Nutrition segment weight loss programs and result in a decline in revenue. Adverse publicity could arise even if the unfavorable effects associated with weight loss products or services resulted from the user’s failure to use such products or services appropriately.

The industry in which our Nutrition segment operates is subject to governmental regulation that could increase in severity and hurt results of operations.

The industry in which our Nutrition segment operates is subject to federal, state and other governmental regulation. Certain federal and state agencies, such as the FTC, regulate and enforce such laws relating to advertising, disclosures to customers, privacy, customer pricing and billing arrangements and other customer protection matters. A determination by a federal or state agency, or a court, that any of our practices do not meet existing or new laws or regulations could result in liability, adverse publicity and restrictions on our business operations. Some advertising practices in the weight loss industry, in particular, have led to investigations from time to time by the FTC and other governmental agencies and many companies in the weight loss industry, including our Nutrition segment's predecessor businesses, have entered into consent decrees with the FTC relating to weight loss claims and other advertising practices. In addition, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising require us and other weight loss companies to use a statement as to what the typical weight loss a customer can expect to achieve on our Nutrition segment programs when using a customer’s weight loss testimonial in advertising. Federal and state regulation of advertising practices generally, and in the weight loss industry in particular, may increase in scope or severity in the future, which could have a material adverse impact on our business.

Other aspects of the industry in which our Nutrition segment operates are also subject to government regulation. For example, the manufacturing, labeling and distribution of food products, including dietary supplements, are subject to strict USDA and FDA requirements and food manufacturers are subject to rigorous inspection and other requirements of the USDA and FDA, and companies operating in foreign markets must comply with those countries’ requirements for proper labeling, controls on hygiene, food preparation and other matters. If federal, state, local or foreign regulation of the weight loss industry increases for any reason, then we may be required to incur significant expenses, as well as modify our operations to comply with new regulatory requirements, which could harm our operating results. Additionally, remedies available in any potential administrative or regulatory actions may include product recalls and requiring us to refund amounts paid by all affected customers or pay other damages, which could be substantial.

Laws and regulations directly applicable to communications, operations or commerce over the Internet such as those governing intellectual property, privacy, libel and taxation, are becoming more prevalent and some remain unsettled. If we are required to comply with new laws or regulations or new interpretations of existing laws or regulations, or if we are unable to comply with these laws, regulations or interpretations, our business could be adversely affected.

Future laws or regulations, including laws or regulations affecting our marketing and advertising practices, relations with customers, employees, service providers, or our services and products, may have an adverse impact on us.

Like other distributors of products that are ingested, we face an inherent risk of exposure to product liability claims if the use of our Nutrition segment products results in illness or injury. The foods that we resell in the U.S. are subject to laws and regulations, including those administered by the USDA and FDA that establish manufacturing practices and quality standards for food products. Product liability claims could have a material adverse effect on our business as existing insurance coverage may not be adequate. Distributors of weight loss food products, including

dietary supplements, as well as our Nutrition segment's predecessor businesses, have been named as defendants in product liability lawsuits from time to time. The successful assertion or settlement of an uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage would harm us by adding costs to the business and by diverting the attention of senior management from the operation of our business. We may also be subject to claims that our Nutrition segment products contain contaminants, are improperly labeled, include inadequate instructions as to use or inadequate warnings covering interactions with other substances. Product liability litigation, even if not meritorious, is very expensive and could also entail adverse publicity for us and adversely affect our results of operations. In addition, the products we distribute, or certain components of those products, may be subject to product recalls or other deficiencies. Any negative publicity associated with these actions would adversely affect our brands and may result in decreased product sales and, as a result, lower revenue and profits.

The stock repurchase activity for the ~~third~~second quarter of ~~2019~~2020 was as follows:

ISSUER PURCHASES OF EQUITY SECURITIES	ISSUER PURCHASES OF EQUITY SECURITIES									ISSUER PURCHASES OF EQUITY SECURITIES
Period		Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾			Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
7/1/2019 - 7/31/2019			1,108	$	16.70		—	$	—
8/1/2019 - 8/31/2019			2,167		17.31		—		—
9/1/2019 - 9/30/2019			—		—		—		—
4/1/2020 - 4/30/2020												66	$	5.27		—	$	—
5/1/2020 - 5/31/2020												589		5.35		—		—
6/1/2020 - 6/30/2020												—		—		—		—
Total			3,275	$	17.11							655	$	5.34

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Delaware		62-1117144
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Title of each class		Trading symbol		Name of each exchange on which registered
Common Stock - $.001 par value		TVTY		The Nasdaq Stock Market LLC

			Page
Part I
	Item 1.	Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3028
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4145
	Item 4.	Controls and Procedures	4246

Part II
	Item 1.	Legal Proceedings	4347
	Item 1A.	Risk Factors	4347
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5562
	Item 6.	Exhibits	5563

(In thousands)
Cash paid for outstanding Nutrisystem shares ⁽¹⁾	$	1,138,143
Value of Tivity Health Common Stock issued in the Merger ⁽²⁾		132,838
Value of Nutrisystem stock options ⁽³⁾		6,020
Value of Tivity Health Replacement Awards attributable to pre-combination service ⁽⁴⁾		9,107
Total Merger Consideration	$	1,286,108

(In thousands)
Cash, cash equivalents, and short-term investments	$	81,217
Accounts receivable		22,639
Inventory		38,494
Prepaid expenses and other current assets		12,345
Property and equipment		31,233
Right-of-use assets		22,145
Intangible assets		933,000
Other assets/liabilities		7,161
Accounts payable		(25,152	)
Accrued salaries and benefits and other liabilities		(41,796	)
Deferred revenue		(13,339	)
Lease liabilities		(22,145	)
Deferred tax liabilities, net		(216,750	)
Total identifiable assets and liabilities acquired	$	829,052
Goodwill ⁽¹⁾		457,056
Total Merger Consideration	$	1,286,108

Large accelerated filer	☒	Accelerated filer	☐	Smaller reporting company	☐
Non-accelerated filer	☐			Emerging growth company	☐

(In thousands)	Fair Value		Estimated Useful Life (in years)

Intangible assets subject to amortization:
Tradename - South Beach Diet		9,000		15
Customer list		110,000		7
Retail customer relationship		8,000		10
Noncompetition agreements		6,000		5
Subtotal	$	133,000

Intangible assets not subject to amortization:
Tradename - Nutrisystem		800,000	n/a
Total intangible assets	$	933,000

Goodwill		457,056	n/a

(In thousands)
Balance, January 1, 2019	$	334,680
Acquisition of Nutrisystem		445,671
Measurement period adjustment ⁽¹⁾		11,384
Balance, September 30, 2019	$	791,735

Options	Shares (In thousands)			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at January 1, 2019		431		$	17.83
Granted		—			—
Exercised		(71	)		12.05
Forfeited		(20	)		37.69
Expired		—			—
Outstanding at September 30, 2019		340		$	17.87		3.8	$	861
Exercisable at September 30, 2019		300		$	15.23		3.1	$	861

	Restricted Stock Awards
	Shares (In thousands)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2019		—		$	—
Granted		—			—
Replacement Awards		258			19.42
Vested		(44	)		19.42
Forfeited		(1	)		19.42
Nonvested at September 30, 2019		213		$	19.42

	Performance Stock Units
	Shares (In thousands)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2019		—		$	—
Granted		806			20.19
Vested		—
Forfeited		(1	)		20.36
Nonvested at September 30, 2019		805		$	20.19

	Market Stock Units
	Shares (In thousands)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2019		45		$	18.25
Granted		—			—
Vested		—			—
Forfeited		(45	)		18.25
Nonvested at September 30, 2019		—		$	—

	September 30, 2019
(In thousands)
Right-of-use assets:
Operating	$	44,642
Finance		145
Total leased assets	$	44,787

Lease liabilities:
Current
Operating	$	13,404
Finance		47
Non-current
Operating	$	33,684
Finance		100
Total lease liabilities	$	47,235

~~Weighted Average Remaining Lease Term (years)~~
~~Operating leases~~	~~3.5~~
~~Finance leases~~	~~2.8~~

~~Weighted Average Discount Rate~~
~~Operating leases~~	~~5.5~~	%
~~Finance leases~~	~~4.4~~	%

	Operating Leases								Financing
(In thousands)	Lease Payments			Sublease Receipts			Net		Leases
Remaining 2019	$	4,272		$	(1,448	)	$	2,824	$	13
2020		15,169			(5,730	)		9,439		52
2021		14,731			(5,699	)		9,032		52
2022		12,738			(5,732	)		7,006		39
2023		3,372			(957	)		2,415		—
2024 and thereafter		1,464			—			1,464		—
Total lease payments		51,746		$	(19,566	)	$	32,180		156
Less: interest		(4,658	)							(9	)
Present value of lease liabilities	$	47,088							$	147

(In thousands)	Operating
Year ending December 31,	Leases
2019	$	4,022
2020		2,040
2021		910
2022		827
2023		136
2024 and thereafter		—
Total minimum lease payments	$	7,935

(In thousands)	For the Three Months Ended					For the Six Months Ended
Derivatives in Cash Flow Hedging Relationships	June 30, 2020			June 30, 2019		June 30, 2020			June 30, 2019
Loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect	$	5,020		$	16,144	$	32,772		$	16,144
Gain (loss) related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect	$	(3,482	)	$	160	$	(4,603	)	$	160

(In thousands)	For the Three Months Ended				For the Nine Months Ended
Derivatives in Cash Flow Hedging Relationships	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect	$	5,076		—	$	21,220		—
Gain related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect	$	39		—	$	199		—

(In thousands)	Severance and Other Employee-Related Costs
Accrued restructuring and related charges liability as of January 1, 2019	$	—
Restructuring charges		3,583
Payments		(1,706	)
Accrued restructuring and related charges liability as of September 30, 2019	$	1,877

(In thousands except per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Numerator:
Income from continuing operations - numerator for earnings per share	$	13,920		$	25,357		$	36,271		$	69,375
Income from discontinued operations - numerator for earnings per share		—			—			—			901
Net income allocated to unvested restricted stock		(63	)		—			(140	)		—
Net income allocated to shares of Common Stock	$	13,857		$	25,357		$	36,131		$	70,276
						��
Denominator:
Shares used for basic income per share		47,923			40,010			45,996			39,898
Effect of dilutive stock options and restricted stock units outstanding:
Non-qualified stock options		64			242			94			277
Restricted stock units		597			263			495			333
Market stock units		—			468			—			497
Warrants related to Cash Convertible Notes		—			1,844			—			2,229
Shares used for diluted income per share		48,584			42,827			46,585			43,234

Earnings per share - basic:
Continuing operations	$	0.29		$	0.63		$	0.79		$	1.74
Discontinued operations	$	—		$	—		$	—		$	0.02
Net income	$	0.29		$	0.63		$	0.79		$	1.76

Earnings per share - diluted:
Continuing operations	$	0.29		$	0.59		$	0.78		$	1.60
Discontinued operations	$	—		$	—		$	—		$	0.02
Net income	$	0.29		$	0.59		$	0.78		$	1.63

Dilutive securities outstanding not included in the computation of earnings per share because their effect is anti-dilutive:
Non-qualified stock options		70			81			74			47
Restricted stock units		276			47			207			34
Restricted stock awards		156			—			94			—

(In thousands)	Net Change in Fair Value of Interest Rate Swaps
Accumulated OCI, net of tax, as of January 1, 2019	$	—
Other comprehensive income (loss) before reclassifications, net of tax of $5,294		(15,925	)
Amounts reclassified from accumulated OCI, net of tax of $50		(150	)
Accumulated OCI, net of tax, as of September 30, 2019	$	(16,075	)

	Three Months Ended June 30,						Six Months Ended June 30,
(In $000s)	2020			2019			2020			2019
Healthcare segment:
Revenues	$	81,923		$	157,481		$	241,615		$	314,008
Adjusted EBITDA		41,472			35,681			71,719			61,810
Adjusted EBITDA as a percentage of revenues		50.6	%		22.7	%		29.7	%		19.7	%
Nutrition segment:
Revenues	$	180,675		$	182,896		$	358,638		$	240,463
Adjusted EBITDA		33,363			34,667			31,916			48,010
Adjusted EBITDA as a percentage of revenues		18.5	%		19.0	%		8.9	%		20.0	%

10.1		~~Change of Control~~Employment Agreement ~~dated September 13, 2016,~~ by and between the Company and Steve Janicak*Richard M. Ashworth, dated May 20, 2020 [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 22, 2020, File No. 000-19364]

10.2		~~Cooperation~~Form of Restricted Stock Unit Award Agreement ~~among the Company, Altaris Capital, L.T.~~for Richard M. Ashworth (Inducement Award), ~~Altris Partners, LLC, George Aitken-Davies and Daniel Tully,~~ dated ~~August 7, 2019~~June 1, 2020 [incorporated by reference to Exhibit ~~10.1~~10.2 to the ~~Company’s~~Company's Current Report on Form 8-K ~~filed August 7, 2019,~~dated May 22, 2020, File No. 000-19364]

10.3		Form of Restricted Stock Unit Award Agreement for Richard M. Ashworth, dated June 1, 2020 [incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated May 22, 2020, File No. 000-19364]

10.4		Form of Market Stock Unit Award Agreement for Richard M. Ashworth, dated June 1, 2020 [incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated May 22, 2020, File No. 000-19364]

31.1		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by ~~Donato Tramuto,~~Richard M. Ashworth, Chief Executive ~~Officer~~.Officer.*

31.2		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Adam Holland, Chief Financial ~~Officer~~.Officer.*

32		Certification Pursuant to 18 U.S.C section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by ~~Donato Tramuto,~~Richard M. Ashworth, Chief Executive Officer, and Adam Holland, Chief Financial ~~Officer~~.Officer.*

101		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL (included in Exhibit 101 hereto).
*		~~Filed herewith~~

*













		Filed herewith

			Tivity Health, Inc.
			(Registrant)

Date:	~~November 12, 2019~~August 7, 2020	By	/s/ Adam Holland

			Chief Financial Officer
			(Principal Financial Officer)