TIVITY HEALTH, INC. (Form: 10-Q, Received: 11/06/2018 11:53:23)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2018

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

For the transition period from _____ to _____

Commission file number 000-19364

TIVITY HEALTH, INC.

(Exact name of registrant as specified in its charter)

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

701 Cool Springs Boulevard, Franklin, TN 37067

(Address of principal executive offices) (Zip code)

(800) 869-5311

(Registrant's telephone number, including area code)

(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.

Yes ☒

No ☐

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).

Yes ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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.

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

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).

Yes ☐

No ☒

As of October 31, 2018, there were outstanding 40,249,950 shares of the registrant’s common stock, par value $.001 per share (“common stock”).

Tivity Health , Inc.

Form 10-Q

Table of Co n te n ts

			Page
Par t I
	Item 1.	Financial Statements	3
	Item 2.	Mana g em e nt's D i scussi o n and Analys i s of Financ i al Condition a nd R e sult s o f O p eratio n s	21
	Item 3.	Quantitativ e an d Q u alitativ e D i scl o s u r e s Abou t Mark e t Risk	29
	Item 4.	Controls a nd Proced u r e s	29

Part II
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 6.	Exhibits	30

PAR T I

Item 1. Financial Statements

TIVITY HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousan d s, except share and per share data)

(Unaudited)

	September 30, 2018			December 31, 2017
Current assets:
Cash and cash equivalents	$	1,643		$	28,440
Accounts receivable, net		67,012			55,113
Prepaid expenses		3,787			3,444
Cash convertible notes hedges		—			134,079
Income taxes receivable		673			39
Other current assets		4,640			2,180
Total current assets		77,755			223,295

Property and equipment, net of accumulated depreciation of $31,636 and $28,533, respectively		14,566			10,658
Long-term deferred tax asset		1,354			25,166
Intangible assets, net		29,049			29,049
Goodwill, net		334,680			334,680
Other long-term assets		25,105			13,315
Total assets	$	482,509		$	636,163

Current liabilities:
Accounts payable	$	30,145		$	26,804
Accrued salaries and benefits		5,590			15,018
Accrued liabilities		41,236			34,511
Cash conversion derivative		—			134,079
Current portion of debt		52			145,959
Current portion of long-term liabilities		2,249			2,262
Total current liabilities		79,272			358,633

Long-term debt		52,132			—
Other long-term liabilities		4,525			5,577

Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock $.001 par value, 120,000,000 shares authorized, 40,045,663 and 39,729,580 shares outstanding, respectively		40			40
Additional paid-in capital		353,594			349,243
Retained earnings (accumulated deficit)		21,128			(49,148	)
Treasury stock, at cost, 2,254,953 shares in treasury		(28,182	)		(28,182	)
Total stockholders' equity		346,580			271,953
Total liabilities and stockholders' equity	$	482,509		$	636,163

See acco m p a nying not e s to the co n sol i dated fina n c i al statemen t s.

TIVITY HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousan d s, exce p t ea r nings (loss) per s h are data)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017			2018		2017
Revenues	$	151,467	$	137,703		$	453,261	$	417,588
Cost of services (exclusive of depreciation and amortization of $1,071, $699, $3,041 and $2,003, respectively, included below)		107,047		94,539			324,346		296,009
Selling, general & administrative expenses		7,817		7,838			24,151		24,376
Depreciation and amortization		1,204		850			3,461		2,426
Restructuring and related charges		—		(16	)		124		669
Operating income		35,399		34,492			101,179		94,108

Interest expense		1,013		4,203			7,948		12,167
Income before income taxes		34,386		30,289			93,231		81,941

Income tax expense		9,029		10,403			23,856		29,334
Income from continuing operations		25,357		19,886			69,375		52,607

Income from discontinued operations, net of income tax		—		6,519			901		2,625
Net income	$	25,357	$	26,405		$	70,276	$	55,232

Earnings per share - basic:
Continuing operations	$	0.63	$	0.50		$	1.74	$	1.34
Discontinued operations	$	—	$	0.17		$	0.02	$	0.07
Net income	$	0.63	$	0.67		$	1.76	$	1.41

Earnings per share - diluted:
Continuing operations	$	0.59	$	0.46		$	1.60	$	1.25
Discontinued operations	$	—	$	0.15		$	0.02	$	0.06
Net income	$	0.59	$	0.61		$	1.63	$	1.31

Comprehensive income	$	25,357	$	26,405		$	70,276	$	59,734

Weighted average common shares and equivalents:
Basic		40,010		39,443			39,898		39,254
Diluted		42,827		43,527			43,234		42,253

See acco m p a nying not e s to the co n sol i dated fina n c i al statemen t s.

TIVITY HEALTH, INC.

CONSOLIDATED STAT E MENTS OF COM P REH E NSIVE INCOME

(In thousan d s)

(Unaudited)

	Nine Months Ended September 30,
	2018		2017
Net income	$	70,276	$	55,232
Other comprehensive income, net of tax:
Foreign currency translation adjustment, net of tax		—		1,458
Release of cumulative translation adjustment to loss from discontinued operations due to substantial liquidation of foreign entity		—		3,044
Total other comprehensive income, net of tax	$	—	$	4,502
Comprehensive income	$	70,276	$	59,734

See acco m p a nying not e s to the co n sol i dated fina n c i al statemen t s.

TIVITY HEALTH, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the Nine Months Ended September 30, 2018

(In thousands)

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Total
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

See accompanying notes to the consolidated financial statements.

TIVITY HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Income from continuing operations	$	69,375		$	52,607
Income from discontinued operations		901			2,625
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,461			2,446
Amortization of deferred loan costs		1,101			2,318
Amortization of debt discount		4,140			5,941
Share-based employee compensation expense		4,913			5,019
Gain on sale of TPHS business		(1,304	)		(4,782	)
Loss on release of cumulative translation adjustment		—			3,044
Deferred income taxes		23,812			27,545
Increase in accounts receivable, net		(12,181	)		(2,986	)
Decrease in other current assets		1,544			2,035
Decrease in accounts payable		(1,285	)		(1,247	)
Decrease in accrued salaries and benefits		(10,626	)		(10,925	)
Decrease in other current liabilities		(11,235	)		(7,487	)
Other		1,912			(2,525	)
Net cash flows provided by operating activities	$	74,528		$	73,628

Cash flows from investing activities:
Acquisition of property and equipment	$	(6,456	)	$	(3,974	)
Proceeds from sale of MeYou Health		1,416			—
Net cash flows used in investing activities	$	(5,040	)	$	(3,974	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt	$	173,350		$	330,700
Payments of long-term debt		(271,923	)		(400,945	)
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		(2,083	)		(1,798	)
Exercise of stock options		1,521			4,314
Deferred loan costs		—			(2,452	)
Change in cash overdraft and other		2,887			2,083
Net cash flows used in financing activities	$	(96,248	)	$	(68,098	)

Effect of exchange rate changes on cash	$	(37	)	$	1,750

Net increase in cash and cash equivalents	$	(26,797	)	$	3,306

Cash and cash equivalents, beginning of period	$	28,440		$	1,602

Cash and cash equivalents, end of period	$	1,643		$	4,908

See acco m p a nying not e s to the co n sol i dated fina n c i al statemen t s.

TIVITY HEALTH, INC.

NOTES TO CONSOL I DATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation

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 (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. We have reclassified certain items in prior periods to conform to current classifications.

Our results from continuing operations do not include the results of the total population health services (“TPHS”) business, which we sold to Sharecare, Inc. (“Sharecare”) effective July 31, 2016. Results of operations for the TPHS business have been classified as discontinued operations for all periods presented in the accompanying consolidated financial statements. See Note 4 for further information.

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, 2017.

2.	Re c ent Relevant Acc o unting St a n d ards

On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”) using the modified retrospective method, pursuant to which we applied ASC Topic 606 to (i) all new contracts entered into after January 1, 2018 and (ii) contracts that were not completed as of January 1, 2018. In accordance with this approach, our results for periods prior to January 1, 2018 were not revised and continue to be reported in accordance with our historical accounting under ASC Topic 605, “Revenue Recognition.” For contracts that were modified prior to January 1, 2018, we have not retrospectively restated the contract for those modifications in accordance with the contract modification guidance in ASC 606-10-25-12 and ASC 606-10-25-13 but instead, using the practical expedient available under ASC 606-10-65-1(f)(4), have reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price.

The cumulative impact of our adoption of ASC Topic 606 was not material to record as of January 1, 2018, and there was no material impact on our consolidated income statement, balance sheet, or cash flows. For example, we do not have any material contract assets or contract liabilities as defined under ASC Topic 606. In addition, the incremental costs of obtaining a contract with a customer (for example, sales commissions) that would have been recognized as an asset on January 1, 2018 were not material to record. See Note 3 for a further discussion of revenue recognition.

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows” (Topic 230) (“ASU 2016-15”). ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows and is to be applied using a retrospective approach. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures and did not result in a reclassification to items in prior periods.

On January 1, 2018, we adopted ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 is to be applied prospectively to awards modified on or after January 1, 2018. The adoption of this standard did not have an impact on our consolidated financial statements and related disclosures.

In February 2016, the Financial Accounting Standards Board (“ FASB ”) issued ASU No. 2016-02, “ Leases ” (“ASU 2016-02” or “ASC 842” ), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position , and will be effective for us on January 1, 2019 . ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASC 842 origin ally required entities to use a modified r etrospective transition method in which companies would initially apply ASC 842 and recognize an adjustment for the effects of the transition as of the beginning of the earliest comparative period presented (Januar y 1, 2017 for the Company) . In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, which amends ASC 842 to allow entities to change the date of initial application to the beginning of the period of adoption (January 1, 2019 for the Company), with no requirement to recast comparative periods. We have elected to apply ASC 842 as of January 1, 2019 and to recognize the cumulative effect of initially applying the standard as an adjustment to beginning retained earnings as of January 1, 2019. We are currently conducting analysis to quantify the adoption impact of the provisions of the new standard and evalu ating our current leases. We believe we are following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption effective January 1, 2019 .

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 do not anticipate that adopting this standard will have an impact on our consolidated financial statements and related disclosures.

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 adoption is permitted for any eliminated or modified disclosures. We do not anticipate that adopting this standard will have a material impact on our disclosures.

3.	Revenue Recognition

Beginning in 2018, we account for revenue from contracts with customers in accordance with 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.

We earn revenue from our three programs, SilverSneakers® senior fitness, Prime® Fitness and WholeHealth Living ^TM . 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, 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 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 months ended September 30, 2018 from performance obligations satisfied in a prior period.

Our fees 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.

Our 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 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.

Although we evaluate our financial performance and make resource allocation decisions based upon the results of our single operating and reportable segment, we believe the following information depicts how our revenues and cash flows are affected by economic factors. For the three and nine months ended September 30, 2018, revenue from our SilverSneakers program, which is predominantly contracted with Medicare Advantage and Medicare Supplement plans, comprised approximately 81% of our consolidated revenues, while revenue from our Prime Fitness and WholeHealth Living programs comprised approximately 16% and 3%, respectively, of our consolidated revenues.

Sales and usage-based taxes are excluded from revenues.

4.	Discontinued Operations

On July 27, 2016, we entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sharecare and Healthways SC, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of the Company, pursuant to which Sharecare acquired the TPHS business, which closed effective July 31, 2016 (“Closing”).

At Closing, Sharecare delivered to the Company an Adjustable Convertible Equity Right (the “ACER”) with an initial face value of $30.0 million. The ACER became convertible into shares of common stock of Sharecare on July 31, 2018 at an initial conversion price of $249.87 per share, subject to customary adjustment for stock splits, stock dividends and other reorganizations of Sharecare.

The Purchase Agreement provided for post-closing adjustments based on, among other things, any successful claims for indemnification by Sharecare (which may have resulted in a reduction in the face amount of the ACER, unless the Company elects, in its sole discretion, to satisfy any such successful claims with cash payments), none of which such claims had been made as of September 30, 2018.

A t September 30, 2018 and December 31, 2017 , we recorded the $39.8 million face value of the ACER at an estimated carrying value of $10.8 m illion, which wa s classified as an equity receivable included in other long-term assets. Upon conversion of the ACER in October 2018, we obtained 159,309 shares of Sharecare common st ock. There are certain restrictions related to selling or transferring this stock. These shares may not be sold or otherwise transferred except (i) for cash subject to the right of first refusal by Sharecare and/or one or more of its shareholders (in each case, at their option), or (ii) with the consent of Sharecare’s shareholders holding at least a majority of Sharecare stock , or (iii) pursuant to certain other exemptions.

The following table presents financial results of the TPHS business included in “income from discontinued operations” for the three and nine months ended September 30, 2018 and 2017.

	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2018		2017			2018			2017
Revenues	$	—	$	—		$	—		$	—
Cost of services		—		103			30			362
Selling, general & administrative expenses		—		137			48			294
Distribution from joint venture		—		—			—			98
Pretax loss on discontinued operations	$	—	$	(240	)	$	(78	)	$	(558	)
Pretax loss on release of cumulative translation adjustment ⁽¹⁾		—		—			—			(3,044	)
Pretax income on sale of TPHS business ⁽²⁾		—		5,226			1,304			4,782
Total pretax income on discontinued operations	$	—	$	4,986		$	1,226		$	1,180
Income tax expense (benefit) ⁽³⁾		—		(1,533	)		325			(1,445	)
Income from discontinued operations, net of income tax	$	—	$	6,519		$	901		$	2,625

(1)	During the second quarter of 2017, we substantially liquidated foreign entities that were part of our TPHS business, resulting in a release of the cumulative translation adjustment of $3.0 million into loss from discontinued operations.

(2)

Includes $1.4 million received during the three months ended June 30, 2018 from a release of escrow funds related to the sale of MeYou Health, LLC in June 2016. Also includes increases to the value of the ACER recorded during the three and nine months ended September 30, 2017 due to the resolution of certain contingencies.

(3)	Income tax benefit for the three months and nine months ended September 30, 2017 includes the effect of a change in the estimate of net U.S. tax incurred on foreign activity classified as discontinued operations.

5 .	Share-Based Compensation

We currently have three types of s h ar e -b a s e d awar d s outst a n d ing to our employees and directors: st oc k optio n s, r e stricted stock units, and market stock u nits. We believe that our s h are- ba sed a w a r d s a lign the inter e sts of o ur emp l oye e s and dir e ct o rs with those of our st o c kho l ders.

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 months ended September 30, 2018, we recognized share-based compensation costs of $1.7 million and $4.9 million, respectively. For the three and nine months ended September 30, 2017, we recognized share-based compensation costs of $1.7 million and $5.0 million, respectively. We account for forfeitures as they occur.

A summary of our stock options as of September 30, 2018 and the changes dur ing the nine months ended September 30, 2018 is presented below:

Options	Shares (In thousands)			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding at January 1, 2018		507		$	12.98
Granted		83			38.07
Exercised		(122	)		12.42
Forfeited		(1	)		39.45
Expired		—			—
Outstanding at September 30, 2018		467		$	17.55		4.6	$	7,299
Exercisable at September 30, 2018		384		$	13.15		3.5	$	7,299

The weighted-average grant-date fair value of options granted during the three months ended September 30, 2018 was $18.65.

The follow i ng table sh o w s a sum m ary of our r e str i cted st o c k units a s of September 30, 2018, as well a s activit y durin g th e nine months ended September 30, 2018:

	Restricted Stock Units
	Shares (In thousands)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2018		572		$	17.60
Granted		73			38.20
Vested		(241	)		18.13
Forfeited		(23	)		24.06
Nonvested at September 30, 2018		381		$	20.85

The follow i ng table sh o w s a sum m ary of our market stock units as of September 30, 2018, a s wel l a s activit y durin g th e nine months ended September 30, 2018:

	Market Stock Units
	Shares (In thousands)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2018		373		$	9.01
Granted		—			—
Vested		(6	)		6.48
Forfeited		(29	)		17.44
Nonvested at September 30, 2018		338		$	8.32

6.	Incom e Taxes

For the three and nine months ended September 30, 2018, we had an effective income tax rate from continuing operations of 26.3% and 25.6%, respectively. For the three and nine months ended September 30, 2017, we had an effective income tax rate from continuing operations of 34.3% and 35.8%, respectively. The lower effective income tax rate in 2018 is primarily a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

At September 30, 2018, we had approximately $16.9 million of federal loss carryforwards, approximately $72.2 million of state loss carryforwards, and approximately $4.7 million of foreign tax credits.

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 2015 to present.

De b t

The C o mp an y's debt, net of unamortized deferred loan costs, c o ns i sted of the followi n g at September 30, 2018 and December 31, 2017:

(In thousands)	September 30, 2018			December 31, 2017
Cash Convertible Notes, net of unamortized discount	$	—		$	145,861
Delayed draw term loan		45,000			—
Revolving credit facility		6,975			—
Capital lease obligations and other		209			549
		52,184			146,410
Less: deferred loan costs		—			(451	)
		52,184			145,959
Less: current portion		(52	)		(145,959	)
	$	52,132		$	—

Credit Facility

On April 21, 2017, we entered into a new Revolving Credit and Term Loan Agreement (the “ Credit Agreement”) with a group of lenders. The Credit Agreement replaced the prior Fifth Amended and Restated Revolving Credit and Term Loan Agreement (the “Prior Credit Agreement”). The Credit Agreement provides us with (1) a $100 million revolving credit facility that includes a $25 million sublimit for swingline loans and a $75 million sublimit for letters of credit, (2) a $70 million term loan A facility, (3) a $150 million delayed draw term loan facility, and (4) an uncommitted incremental accordion facility of $100 million.

We used the proceeds of the term loan A and cash on hand to repay all of the outstanding indebtedness under the Prior Credit Agreement and to pay transaction costs and expenses. Proceeds of revolving loans and delayed draw term loans may be used to repay outstanding indebtedness (including amounts payable upon or with respect to any conversion of the Cash Convertible Notes discussed below and the repayment of any revolving loans borrowed for such purposes), to finance working capital needs, to finance acquisitions, to finance the repurchase of our common stock, to finance capital expenditures and for other general corporate purposes of the Company and its subsidiaries. As further detailed below under “1.50% Cash Convertible Senior Notes Due 2018”, on July 2, 2018, we borrowed $100.0 million under the delayed draw term loan, which was used to repay the principal amount of the Cash Convertible Notes. No additional amounts may be borrowed under the delayed draw term after July 2, 2018.

We are required to repay any outstanding revolving loans in full on April 21, 2022. Th e term loan A was repaid in full during 2017 and may not be re-borrowed. W e are required to repay the delayed draw term loan in quarterly principal installments calculated as follows: (1) for each of the first six quarters following the time of borrowing (beginning with the fourth quarter of 2018 and ending with the first quarter of 2020) , 1.250% of the aggregate principal amount of the delayed draw term loan funded as of the last day of the immediately preceding quarter; and (2) for each of the remaining quarters prior to maturity on April 21, 2022, 1.875% of the aggregate principal amount of the delayed draw term loan funded as of the last day of the immediately preceding quarter. At maturity on April 21, 2022, the entire unpaid principal balance of the delayed draw term loan is due and payable. During the third quarter of 2018, we paid down $ 55.0 million on the delayed draw term loan, which satisfied all of the mandatory principal payments described in items 1 and 2 above and further reduced the princi pal balance due at maturity . No further principal payments are required until maturity. As of September 30, 2018 , a vailability under the revolving credit facility totaled $ 86.9 million.

Borrowings under the Credit Agreement generally 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 affected lenders, 12-month LIBOR), which may not be less than zero, or (2) the greatest of (a) the SunTrust Bank prime lending rate, (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 varies between 1.50% and 2.75%, and the Base Rate margin varies between 0.50% and 1.75%, depending on our net leverage ratio. The Credit Agreement also provides for annual commitment fees ranging between 0.20% and 0.50% of the unused commitments under the revolving credit facility and the delayed draw term loan facility and annual letter of credit fees on the daily outstanding availability under outstanding letters of credit at the applicable LIBOR margin. Extensions of credit under the Credit Agreement are secured by guarantees from all of the Company’s active material domestic subsidiaries and by security interests in substantially all of the Company’s and such subsidiaries’ assets.

The Credit Agreement contains financial covenants that require us to maintain, as defined, (1) specified maximum ratios or levels of funded debt to EBITDA and (2) a specified minimum ratio or level of fixed charge coverage. The Credit Agreement also contains various other affirmative and negative covenants that are typical for financings of this type. Among other things, they limit repurchases of our common stock and the amount of dividends that we can pay to holders of our common stock.

1.50% Cash Convertible Senior Notes Due 2018

On July 16, 2013, we completed the issuance of $150.0 million aggregate principal amount of cash convertible senior notes due July 2018 (the “Cash Convertible Notes”), which bore interest at a rate of 1.50% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2014. The Cash Convertible Notes matured on July 2, 2018. All of the holders elected to convert their Cash Convertible Notes for settlement on July 2, 2018, and none of the Cash Convertible Notes were repurchased or converted into cash prior to such date.

The cash conversion feature of the Cash Convertible Notes was a derivative liability (the “Cash Conversion Derivative”) that required bifurcation from the Cash Convertible Notes in accordance with FASB ASC Topic 815, “Derivatives and Hedging” (“ASC Topic 815”), and was carried at fair value. The fair value of the Cash Conversion Derivative at the time of issuance of the Cash Convertible Notes was recorded as a debt discount for purposes of accounting for the debt component of the Cash Convertible Notes.

The debt discount was amortized over the term of the Cash Convertible Notes using the effective interest method. For the three and nine months ended September 30, 2018, we recorded $0 and $4.1 million, respectively, of interest expense related to the amortization of the debt discount based upon an effective interest rate of 5.7%. For the three and nine months ended September 30, 2017, we recorded $2.0 million and $5.9 million, respectively, of interest expense related to the amortization of the debt discount based upon an effective interest rate of 5.7%. We also recognized interest expense of $0 and $1.1 million for the three and nine months ended September 30, 2018, respectively, and interest expense of $0.6 million and $1.7 million for the three and nine months ended September 30, 2017, respectively, related to the contractual interest rate of 1.50% per year.

In connection with the issuance of the Cash Convertible Notes, we entered into privately negotiated convertibl e note hedge transactions (the “ Cash Convertible Notes Hedges ” ), which were cash-settled and were intended to reduce our exposure to potential cash payments that we would be required to make if holders elected to convert the Cash Convertible Notes at a time when our stock price exceeded the conversion price. The Cash Convertible Notes Hedges were recorded as a der ivative asset under ASC Topic 815 and were carried at fair value. See Note 9 for additional information regarding the Cash Convertible Notes Hedges and the Cash Conversion Derivative and their fair values.

On July 2, 2018, we repaid the $150.0 million aggregate principal amount of the Cash Convertible Notes using a combination of available cash and proceeds from borrowings under the delayed draw term loan facility of $100.0 million. In addition, on July 2, 2018 we settled the Cash Conversion Derivative of $141.2 million, which was fully funded by payments made by the counterparties for the settlement of the Cash Convertible Notes Hedges.

In July 2013, we also sold separate privately negotiated warrants (the “Warrants”) initially relating, in the aggregate, to approximately 7.7 million shares of our common stock underlying the Cash Convertible Notes Hedges. The Warrants have an initial strike price of approximately $25.95 per share. Beginning on October 1, 2018, the Warrants are 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 are subject to automatic exercise on each trading day). The Warrants are 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. The Warrants meet the definition of derivatives under the guidance in ASC Topic 815; however, because these instruments have been determined to be indexed to our own stock and meet the criteria for equity classification under ASC Topic 815, the Warrants have been accounted for as an adjustment to our additional paid-in-capital.

When the market price per share of our common stock exceeds the strike price of the Warrants, the Warrants have a dilutive effect on net income per share, and the “treasury stock” method is used in calculating the dilutive effect on earnings per share. See Note 11 for additional information on such dilutive effect.

8.	Commitment s an d Contingencies

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 dropped on that same day. In connection with the United Press Release, three lawsuits have been filed against the Company as described below. We are currently not able to predict the probable outcome of these matters or to reasonably estimate a range of potential losses, if any. We intend to vigorously defend ourselves against all three complaints.

Weiner, Denham, and Allen Lawsuits

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 (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. On August 3, 2018, the Company filed a motion to dismiss the first amended complaint and a memorandum in support of motion to dismiss seeking dismissal on grounds that the first amended complaint fails to plead any actionable statement or omission and fails to allege facts sufficient to give rise to a strong inference of scienter (the “Motion to Dismiss”).

On January 26, 2018, Charles Denham, 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, current directors and a former director of the Company, as defendants (“Denham Lawsuit”). The complaint asserts claims for breach of fiduciary duty, waste, and unjust enrichment, largely tracking allegations in the Weiner Lawsuit. The complaint further alleges that certain defendants engaged in insider trading. The plaintiff seeks monetary damages on behalf of the Company, certain corporate governance and internal procedural reforms, and other equitable relief.

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 (the “Allen Lawsuit”). The complaint asserts claims for breach of fiduciary duty and violations of the Securities and 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 seeks 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, and the consolidated case was stayed pending entry of an order resolving the Motion to Dismiss filed in the Weiner Lawsuit.

Other

Additionally, from time to time, we are subject to contractual disputes, claims and legal proceedings that arise in the ordinary course of our business. While we are unable to estimate a range of potential losses, we do not believe that any of the legal proceedings pending against us as of the date of this report, some of which are expected to be covered by insurance policies, will have a material adverse effect on our financial statements. As these matters are subject to inherent uncertainties, our view of these matters may change in the future. We expense legal costs as incurred.

9.	Fai r Valu e Measu r e ments

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.

Fair Value Hierarchy

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:

Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuation techniques in which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:

Unobservable inputs that are supported by little or no market activity and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

Asse t s and L i abilities M e asured at Fa i r Value on a R e curri n g Bas i s

As described in Note 7, the Cash Convertible Notes Hedges and Cash Conversion Derivative were settled upon their maturity on July 2, 2018 and therefore had a value of $0 at September 30, 2018. At December 31, 2017, the fair values of the Cash Convertible Notes Hedges and the Cash Conversion Derivative were measured using Level 3 inputs because these instruments were not actively traded. The Cash Convertible Notes Hedges and the Cash Conversion Derivative were designed such that changes in their fair values would offset one another, with minimal impact to the consolidated statements of operations.

The follow i ng table pr e sen t s our fin a nc ia l instru m ents measured at fair value on a rec u rr i ng b a sis us i ng u n o b serv a ble in pu t s (Leve l 3):

(In thousands)

Balance at

December 31,

2017

Purchases

of Level 3

Instruments

Settlements of

Level 3

Instruments

Gains (Losses)

Included in

Earnings

Balance at

September 30,

2018

Cash Convertible Notes Hedges

(Assets)

134,079

—

(141,246

)

7,167

—

Cash Conversion Derivative

(Liabilities)

(134,079

)

—

141,246

(7,167

)

—

The gai n s a n d loss e s inc lu ded in e a rni n gs not e d ab o ve represent the c h an g e in the fair value of these fina n cial i n stru me nts and were r e c o rded e a ch p er i od in the c on solidated sta t ements of operations as sell i ng, gen e ral a nd admin i str a tive expens e s.

Fair Value of Other Financial Instruments

The e stimated f a ir value of each class of fina n cial i n stru m ents at September 30, 2018 w a s as foll o ws:

C a sh and c a sh equival e nts – The carr y ing amount of $1.6 million app r oximat e s fair value due to the sh o rt maturity of those i n str um ents (l e s s th a n three m o nths).

D e bt – The est i mated fair v a lue of outst a nding b orr o w i ngs u nd e r t h e Credit A gre e m ent, which incl u d e s a r e volving cr e dit facility and a delayed draw term loan f a cility (see Note 7), is det e r m ine d b a s e d o n th e fai r val u e hierarch y a s disc u sse d a bove .

The r e volving credit facility and the delayed draw term loan are not actively trad e d and theref o re are c l assif i ed as a Level 2 valuation based on the market for s i milar ins t ru m ents. The estimated fair value is b a s e d on the maximum of the pr i c e s set by the issu i ng b an k given c u rr e nt market co n ditions a n d is not nec e ssarily indicative of the amount we cou l d rea l ize in a c u rr e nt market exchan g e. The estimated fair value and carrying amount of outstanding borrowings under the Credit Agreement at September 30, 2018 were $51.9 million and $52.0 million, respectively.

10.	Deri v ati v e I n strume n ts a nd Hedgi n g Acti v ities

We used derivative instruments to manage risks related to the Cash Convertible Notes, which matured and were repaid on July 2, 2018. We account for derivatives in accordance with ASC Topic 815, which establishes accounting and reporting standards requiring that certain derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative's fair value will be recognized currently in earnings unless specific hedge accounting criteria are met. We do not execute transactions or hold derivative financial instruments for trading or other purposes.

Der i vat i ve Instru m ents Not D e sig n ated a s H e dgi n g Instru m ents

The C a sh C o nvers i on Der i vative and Cash Conv e rtible Notes H ed g es were settled on July 2, 2018 in conjunction with the maturity of the Cash Convertible Notes. They did no t qualif y fo r hedg e accountin g treatmen t unde r U.S . GAA P an d were m easure d a t fai r valu e, wit h gain s and loss e s r e co g niz e d immed i ately in the con s olidated statements of operations. T hes e derivativ e instrumen t s di d no t hav e a materia l im p a c t o n our co n sol i dated statemen t s of comprehensive income for the three and nine months ended September 30, 2018 a n d 2017.

The Cash Convers i on Der i vative was accounted for as a derivative liability and carried at fair value. In order to offset the r i s k ass o ciated w i th the Cash Conversion D e rivative, we entered into Cash Conv e rtible Not e s H e dg e s, wh i ch were c a s h -settl e d and were intend e d to r e duce our ex p os u re to pot e ntial c a sh pa y ments that we wou l d be r e quir e d to make if holders e l ected to conv e rt the C a sh Conv e rtible Notes at a time when o ur st o ck p rice exc e eds the con v ers i on p rice. The C a sh C o nvertible Notes Hed g es were acco u nted for as a d eri v ative asset and c a rr i ed at fair value.

The gains and losses resulting from a change in fair values of the Cash Conversion Derivative and the Cash Convertible Notes Hedges are reported in the consolidated sta tements of comprehensive income .

(In thousands)	For the Three Months Ended					For the Nine Months Ended
	September 30, 2018		September 30, 2017			September 30, 2018			September 30, 2017			Statements of Operations Classification
Cash Convertible Notes Hedges:
Net unrealized gain	$	—	$	5,597		$	7,167		$	118,112		Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized loss	$	—	$	(5,597	)	$	(7,167	)	$	(118,112	)	Selling, general and administrative expenses

Financial Instruments

The esti m at e d gross fa i r valu e s of deri v ative instru m ents at September 30, 2018 and December 31, 2017 w e r e a s follow s :

(In thousands)	September 30, 2018		December 31, 2017
Assets:
Derivatives not designated as hedging instruments:
Cash convertible notes hedges	$	—	$	134,079
Liabilities:
Derivatives not designated as hedging instruments:
Cash conversion derivative	$	—	$	134,079

See Note 9 for more information on fair value measurements.

11.	Earning s Pe r Sha r e

The follow i ng is a r e c o ncili a tion of the n u merat o r a n d denom i nat o r of bas i c and d iluted earnin g s p e r share f o r the three and nine months ended September 30, 2018 a n d 2017 :

(In thousands except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator:
Income from continuing operations - numerator for earnings per share	$	25,357	$	19,886	$	69,375	$	52,607
Income from discontinued operations - numerator for earnings per share		—		6,519		901		2,625
Net income - numerator for earnings per share	$	25,357	$	26,405	$	70,276	$	55,232

Denominator:
Shares used for basic income per share		40,010		39,443		39,898		39,254
Effect of dilutive stock options and restricted stock units outstanding:
Non-qualified stock options		242		464		277		463
Restricted stock units		263		538		333		583
Market stock units		468		535		497		486
Warrants related to Cash Convertible Notes		1,844		2,547		2,229		1,467
Shares used for diluted income per share		42,827		43,527		43,234		42,253

Earnings per share - basic:
Continuing operations	$	0.63	$	0.50	$	1.74	$	1.34
Discontinued operations	$	—	$	0.17	$	0.02	$	0.07
Net income	$	0.63	$	0.67	$	1.76	$	1.41

Earnings per share - diluted:
Continuing operations	$	0.59	$	0.46	$	1.60	$	1.25
Discontinued operations	$	—	$	0.15	$	0.02	$	0.06
Net income	$	0.59	$	0.61	$	1.63	$	1.31

Dilutive securities outstanding not included in the computation of earnings per share because their effect is anti-dilutive:
Non-qualified stock options		81		—		47		5
Restricted stock units		47		10		34		10

(1)	Figures may not add due to rounding.

Market 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.

12.	Accumulated OCI

There were no changes in accumulated other comprehensive income (loss) (“OCI”) for the nine months ended September 30, 2018. The following tables summarize the changes in accumulated OCI, net of tax, for the nine months ended September 30, 2017:

(In thousands)	Foreign Currency Translation Adjustments
Accumulated OCI, net of tax, as of January 1, 2017	$	(4,502	)
Other comprehensive income before reclassifications, net of tax of $225		1,458
Amounts reclassified from accumulated OCI, net of tax of $0		3,044
Accumulated OCI, net of tax, as of September 30, 2017	$	—

T here were no reclassifications out of accumulated OCI for the nine months ended September 30, 2018.

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

O v er v i e w

Tivity Health, Inc. (the “Company”) was founded and incorporated in Delaware in 1981. Through our three programs, SilverSneakers senior fitness, Prime Fitness and WholeHealth Living, we are focused on advancing long-lasting health and vitality, especially in aging populations. 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 16,000 partner locations and more than 1,000 alternative 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 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, speech therapy, and more .

Effective July 31, 2016, we sold our total population health services (“TPHS”) business to Sharecare. Results of operations for the TPHS business have been classified as discontinued operations for all periods presented in the consolidated financial statements .

The Company is head q uart e red at 701 C o ol Sprin g s B o ulevard, Fra n klin, Tennessee 370 6 7.

Fo r w ar d-L oo king Statements

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 :

•

our ability to develop and implement effective strategi e s;

•

the effectiveness of the reorganization of our business and our ability to realize the anticipated benefits;

•

our ability to sign and imp l ement new contracts with new or existing customers;

•

our ability to accurately forec a st the c o sts requir e d to s u ccessfully implem e nt n e w contr a cts;

•

our ability to ren e w and/ o r maintain con t rac t s with o u r cus t o m ers and/or our partner locations u nder ex i sting terms o r r e structure these contrac t s on term s tha t w o ul d no t hav e a materia l ne gativ e impac t o n ou r result s o f op e ratio n s;

•

ou r abilit y t o effectivel y compet e aga i ns t othe r entities , whos e financial , research , staff , an d marketin g resource s may exce e d our r e so u rces;

•

ou r abilit y t o accuratel y forec a s t ou r re v enu e s , marg i n s , ea r nin g s an d ne t i n c o me , a s wel l a s an y potent i al ch a r g e s t h a t we may inc u r as a result of c h ang e s in o u r bus i n e ss a nd leadersh i p;

•

our ability to antici p ate c h ange a nd r e spond to em e r ging tre n ds for healt h c a re and the imp a ct of the sa m e on dem a nd for our s e rvices;

•

the risks associated with deriving a significant concentration of our revenues from a limited number of customers;

•

ou r a b ili t y a n d / o r th e ab i li t y o f ou r customer s t o enro ll partic i pant s a nd t o a ccurate ly fore c as t thei r lev el of enroll m en t a nd partic i patio n i n ou r program s in a manne r an d w i t h in th e timefram e anti c ipate d b y us;

•

the impact of severe or adverse weather conditions on member participation in our programs;

•

th e ab i li t y o f ou r customer s t o maintai n t h e numbe r o f cove r e d li v e s enrol led i n th e p l an s durin g th e term s o f ou r agreements;

•

ou r a b ili t y t o s e rvic e ou r d ebt , mak e pr i nci p a l an d i nteres t p a ym e n t s a s tho s e p a ym e nt s b e com e d u e , an d remai n in co m pli a nce w i t h our debt covenants;

•

th e risk s asso c iate d w i t h change s i n mac r oe c ono m i c condit i ons;

•

ou r a b ili t y t o in t egrat e n e w o r acq u ire d b us in esses , servic es, techno l og i e s, solutions, or products int o ou r bus i ne s s an d t o ac c ura t e ly f orecas t th e relate d costs;

•

ou r a b ili t y t o a n ticipat e a n d re s po nd t o strate g i c cha n ges , o p portu n ities , a nd emer g in g tr e nd s i n o u r i n d u st r y a n d/o r bu s ines s a n d t o accuratel y for e cas t th e rela t e d impac t o n ou r revenue s an d earnings;

•

th e impac t o f an y i m pairmen t o f ou r goo d w i ll , intangib le as s ets , o r othe r long-ter m asset s ;

•

ou r a b ili t y t o d e vel op and commercially introduce n e w pro d uct s and services ;

•

the market’s acceptance of our new products and services;

•

ou r a b ili t y t o o b tai n a d e q uat e fin a nci ng t o pr ov id e th e c a pit al tha t m ay b e n ecessa r y t o s u ppor t ou r current or future o pe r ation s ;

•

th e risk s asso c iate d w i t h dat a priva c y o r se c u ri t y breaches , compute r hacking , ne t w or k penetrat i o n an d othe r illega l intrusion s of ou r infor m atio n s y stem s o r thos e o f third-par t y vendor s o r o t he r servi c e providers , w h ic h ma y re s ul t i n unauthorize d a c ces s by thir d part i e s t o customer , emplo y e e o r ou r in f ormatio n o r member healt h i nformatio n an d may lea d t o a disruption in our business, costs to modify, enhance, or remediate our cybersecurity measures, enfor c e m en t actions , fine s or lit i gatio n agains t us, or damage to our business reputation;

•

the impact of any n e w or p r oposed legi s lation, regulations and interp r etations relating to Medi c are, M edi c are Ad v an t age, or Medicare Supplement;

•

current geopolitical turmoil and the continuing threat of domestic or international terr o rism;

•

the potential emergence of a health pandemic or an infectious di s ea s e outbreak;

•

the impact of the Tax Act and any additional new or proposed tax legislation;

•

the impact of legal p r oceedings inv o lving us and/or our subsidia r ies; and

•

other risks de t ailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our other filings with the Securities and Exchange Commission.

We u n dert a ke no obli g ati o n to update o r revise any such forw a r d - l ook i ng stat e ments.

Cu s tomer Contr a cts

Our customer contrac t s gen e rally have initial terms of approximately three years . Som e o f ou r c o ntr a ct s a llo w th e cust o me r t o termi n at e early and/or determine on an annual basis to which of their members they will offer our programs .

Busin e ss St r ategy

Our “A-B-C-D” strategy, which leverages both our traditional physical footprint and developing digital platforms, is designed to (A) add new members in our three existing networks - SilverSneakers, Prime Fitness and WholeHealth Living, (B) build engagement and participation among our current eligible members, (C) collaborate with partners to add new products and services that will leverage the value of our brand, and (D) deepen relationships with our partners and their instructors within our national network. In addition to the A-B-C-D strategy, we are focused on supporting the ability of our health plan customers to meet the needs of their members as well as providing a valuable service to improve the health and well-being of the consumers we serve through our networks and with our programs.

We engage and support our members based on the needs and preferences of our customers. Within our fitness networks, we have approximately 16,000 partner locations and more than 1,000 alternative locations that provide classes outside of traditional fitness centers. More than 14,000 of these partner locations within the national network provide access to SilverSneakers members, and more than 10,000 of these locations offer access to Prime Fitness members.

Critical Accounting Policies

We d e scri b e our s i gnifica n t acc o unting polic i es in N o te 1 to the consol i dated fi n anc i al state m ents in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. We p r e pare the consol i date d financ i a l statement s i n con f ormit y wit h U.S . GAAP , wh i ch r e qu i r e s us to m a ke estimat e s a n d judgm e nts that affect the rep o rted a mo u nts of asse t s and li a bilities and related discl o su r es a t th e dat e o f th e financ i al statement s an d th e rep o rt e d amoun t s o f reven u e s an d expense s du rin g th e rep o rtin g period . Actual result s ma y diffe r fro m thos e estimates.

We bel i eve the followi n g acco u nting pol i cies are the m ost c r itical in und e rst a ndi n g the estima t es a n d judg m ents that are involved in prepar i ng o u r fina n cial stat e ments a n d the uncertainti e s that cou l d impact o u r r e sults of operations, fina n cial condition and cash flows.

R e ve n ue Recognition

Beginning in 2018, we account for revenue from contracts with customers in accordance with 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.

We earn revenue from our three p ro g ra m s, SilverSneakers s e nior fitness, Prime Fitness and WholeHealth Living. We provide the SilverSne a k e rs seni o r fitn e ss pro g ram to me m bers of Med i care Advant ag e and M edic a re Supple m ent plans through our contracts with such plans. We offer Prime Fitness, a fitness facility access program, through contracts with employers, commercial health plans, and other sponsoring organizations that allow their members to individually purchase the program. We sell our WholeHealth Living program primarily to health plans.

Our fees are variable month to month and are generally billed per member per month ( “PMPM” ) or bill ed 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, w e capitalize costs to obtain contracts with customers and amortize them over the expected r ecovery period.

Sales and usage-based taxes are excluded from revenues .

I m pair m ent of Intangible Assets a nd G oo dwill

We review g o odwill for i mp airm e nt at the rep o rting unit lev e l (op e rat i ng s e gment o r one level b e low an o perating s e gmen t ) on an a n nual bas i s ( d ur i ng the fourth q u arter of o u r fiscal year) or more frequ en t ly whenever events or circumsta n c e s i n dicate that th e carryin g v a lu e ma y no t b e r e cov e rab l e . We have a single reporting unit.

As part of the impairment evaluation, we may elect to perf o rm a qualitative ass e ss m e n t to determine whether it is more l i kely than not that the fair value of the rep o rting unit is less than its c a rryi n g value. If w e elect not to perform a qualitat i ve assessment or we determine that it is more l i kely than not that the fair value of the rep o rting unit is less than its 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 the fair value of the rep o rting unit based on our market capitalization and compare such fair value to the carrying value of the reporting unit. 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.

Except for a tradename that has an indef i ni t e life and is 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 s e ss the potential i mpair m ent of intangible assets subject to amortiz a tion whenever e v ents or changes in c i rcu m stances indicate that the carrying values may not be recoverable. If we determine that the carrying value of other identifiable intangible assets may n o t be recoverable, we calculate any impair me nt using an estimate of t h e 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 n s a ction b e tween m a rket partici p ants. We estimated the fair value of our indefinite-lived intangible asset, a tradename, using a present value technique, which requires management's estimate of future revenues attributable to this tradename, estimation of the long-term growth rate and royalty rate for this revenue, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the estimate of fair value for the tradename.

Income Taxes

The obj e ctiv e s of acco u nting for income taxes are to rec o gn i ze the amount of taxes payable or refund a ble f o r the current year and d ef e rr e d tax liabilities and a ss e ts for the future tax co n se q ue n c e s of events that ha v e been reco g niz e d in an e ntity's financ i al stat e ments o r tax retur n s. Acc o unting for i n come t a xes r e quir e s s i gnificant judgm e nt in evaluating tax positio n s and in determ i ning i nco m e tax provisio n s, inc l uding d eterm i nation of def e rr e d tax assets, deferred t a x liabilities, and any valua t ion allowa n ces t h at might be r e quir e d aga i nst deferr e d tax assets.

Valuation all o wa n c e s are e stabl i sh e d w h en n e c e ssary to red u ce de f erred tax assets to the a m ounts that a re expected to be real i z ed . Wh e n w e det e r m i n e tha t i t i s mor e likel y tha n no t tha t w e wil l b e abl e t o realiz e o u r d e ferre d ta x asset s i n th e fu t u re, an adj u stmen t t o th e deferre d ta x asse t is mad e a n d refl e c t e d i n inco m e. Th i s determinat i o n wil l b e m a d e b y co n s i d ering vario u s fact o rs , incl u din g t h e reversa l an d timin g o f existin g temp o rar y differe n c e s, ta x planni n g strat e gie s, a n d estimat e s o f future taxabl e incom e exclusiv e o f th e reversa l o f temporar y differences.

We recogn i ze the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be s u stain e d on examination by the taxing authoriti e s, b as e d on the tec h nical mer i ts of the posi t ion. The tax benefits r e c og niz e d in the financ i al stat e ments fr o m such a p ositi o n sh o uld be measured b a s ed o n the largest b e nefit that has a g r e ater than 5 0 % likeliho o d of being real i zed upon ultimate settlement. U.S. GAAP also provides guidance on derecognition of income tax asse t s and l iabiliti e s, cl a ssif i cation of current a n d deferred i n come tax ass e ts and l i abilit i es, acc o unti n g for inter e st and p e nalti e s assoc i ated with tax positi o ns, a n d inco m e tax discl o sures. Ju d gment is required in a ss e ss i ng the future tax conse q ue n c e s of events that have been recogn i z e d in our fina n cial statemen t s or t a x returns. Variatio n s in the act u al ou t come of th e se future tax conseq u e n c e s could materially i m pact o u r c o nsolidated fin an cial p o sition, resul t s of operations, a n d cash fl o ws.

The Tax Act was signed into law on December 22, 2017 and includes a number of changes to existing U.S. tax laws that impact us, most notably, a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Tax Act also provided for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017. In addition, it provides for prospective changes beginning in 2018, including acceleration of tax revenue recognition and additional limitations on executive compensation and the deductibility of interest. We are currently evaluating the Tax Act with our professional advisers; we cannot predict at this time the full impact of the Tax Act on the Company in future periods.

Executi v e O v e r vi e w o f Results

The key fina n cial r e sul t s for the three and nine months ended September 30, 2018 a re:

•

Reven u e s from continuing operations o f:

$ 151.5 millio n for the three months ended September 30, 2018, u p 10.0 % fro m $ 137.7 millio n fo r the same period in 2017; and

$453.3 million for the nine months ended September 30, 2018, up 8.5% from $417.6 million for the same period in 2017.

•

Pre-tax income from continuing operations of:

$34.4 million for the three months ended September 30, 2018, up 13.5% from $30.3 million for the same period in 2017; and

$93.2 million for the nine months ended September 30, 2018, up 13.8% from $81.9 million for the same period in 2017.

•

Earnings per diluted share from continuing operations o f:

$ 0.59 for the three months ended September 30, 2018, u p 28.3 % fro m $ 0.46 fo r the same period in 2017; and

$1.60 for the nine months ended September 30, 2018, up 28.0% from $1.25 for the same period in 2017; and

•

Income from discontinued operations, net of income tax, of:

$0.0 million for the three months ended September 30, 2018 compared to $6.5 million for the same period in 2017; and

$0.9 million for the nine months ended September 30, 2018 compared to $2.6 million for the same period in 2017.

Resu l ts of O perati o ns

The follow i ng table sets f o rth the comp o nents of the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017 expr e ssed as a p e rcent a ge of reven ue s from continuing operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of services (exclusive of depreciation and amortization included below)		70.7	%		68.7	%		71.6	%		70.9	%
Selling, general and administrative expenses		5.2	%		5.7	%		5.3	%		5.8	%
Depreciation and amortization		0.8	%		0.6	%		0.8	%		0.6	%
Restructuring and related charges		0.0	%		0.0	%		0.0	%		0.2	%
Operating income ⁽¹⁾		23.4	%		25.0	%		22.3	%		22.5	%

Interest expense		0.7	%		3.1	%		1.8	%		2.9	%
Income before income taxes ⁽¹⁾		22.7	%		22.0	%		20.6	%		19.6	%
Income tax expense		6.0	%		7.6	%		5.3	%		7.0	%

Income from continuing operations ⁽¹⁾		16.7	%		14.4	%		15.3	%		12.6	%
Income (loss) from discontinued operations, net of tax		0.0	%		4.7	%		0.2	%		0.6	%
Net income ⁽¹⁾		16.7	%		19.2	%		15.5	%		13.2	%

(1 )	Figures may not add due to rounding.

Re v enues

Revenues from continuing operations for the three and nine months ended September 30, 2018 increased $13.8 million and $35.7 million, respectively, or 10.0% and 8.5%, respectively, over the same periods in 2017, primarily due to a combination of a net increase in the number of eligible and enrolled members in our fitness solutions.

Cost of Services

Cost of services from continuing operations (excluding depreciation and amortization) as a percentage of revenues increased from the three months ended September 30, 2017 (68.7%) to the three months ended

September 30, 2018 ( 70.7 %) due to a higher number of average visits per member per month in 2018 compared to 2017, and the related costs were not fully offset by incremental revenue from such visits due t o certain of these member visits relating to customer contracts in which our revenue per member is fixed , while our costs are variable. This increase was somewhat offset by lower expenses in 2018 r elated to salaries and benefits , including a lower amount of short-term incentive compensation based on progress against targets.

Cost of services from continuing operations (excluding depreciation and amortization) as a percentage of revenues increased from the nine months ended September 30, 2017 (70.9%) to the nine months ended September 30, 2018 (71.6%) due to a higher number of average visits per member per month in 2018 compared to 2017, and the related costs were not fully offset by incremental revenue from such visits due to certain of these member visits relating to customer contracts in which our revenue per member is fixed, while our costs are variable. This increase was mostly offset by lower expenses in 2018 related to salaries and benefits, including a lower amount of short-term incentive compensation based on progress against targets, as well as lower business separation costs associated with the separation of the Network Solutions business from the disposed TPHS business.

Selling, General and A d ministrati v e Expens e s

Selling, gen e ral and adm i n i strative exp e ns e s from continuing operations a s a percent a ge of r e venu e s did not materially change from the three months ended September 30, 2017 (5.7%) to the three months ended September 30, 2018 (5.2%) or from the nine months ended September 30, 2017 (5.8%) to the nine months ended September 30, 2018 (5.3%).

Dep r e ciati o n and Amort i zation

De p r e ciation and am o rtization expe n se from continuing operations increased $0.3 million and $1.0 million for the three and nine months ended September 30, 2018, respectively, primarily due to increased depreciation expense related to computer software and hardware.

Re s tru c turi n g and Rel a t e d Char g es

In the third quarter of 2016, we began implementing a reorganization of our corporate support infrastructure, which was largely completed during the first quarter of 2017 (the "2016 Restructuring Plan"). During the nine months ended September 30, 2017, we incurred approximately $0.7 million in restructuring charges from continuing operations, which consisted primarily of severance and other employee-related costs, related to the 2016 Restructuring Plan.

Interest Expense

Interest expense from continuing operations decreased $3.2 million and $4.2 million from the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2018, primarily due to a lower average level of outstanding indebtedness during 2018 compared to 2017, including the repayment of the Cash Convertible Notes in July 2018.

Income Tax Expense

See N ote 6 of the notes to consolidated financial statements in this report for a discussion of income tax expense.

Liquidi t y and Capital R e sourc e s

Credit Facility

On April 21, 2017, we entered into the Credit Agreement, which replaced the Prior Credit Agreement. The Credit Agreement provides us with (1) a $100 million revolving credit facility that includes a $25 million sublimit for swingline loans and a $75 million sublimit for letters of credit, (2) a $70 million term loan A facility, (3) a $150 million delayed draw term loan facility, and (4) an uncommitted incremental accordion facility of $100 million.

As of September 30 , 2018, our availability under the Credit Agreement included $ 86.9 million under the revolving credit facility. Proceeds of revolving loans may be used to repay outstanding indebtedness , to finance working capital needs, to finance acquisitions, to finance the repurc hase of our common stock, to finance capital expenditures and for other general corporate purposes of the Company and its subsidiaries.

The term loan A was repaid in full in 2017. We are required to repay any outstanding revolving loans and the unpaid balance of the delayed draw term loan in full upon their maturity date of April 21, 2022.

For a detailed description of the Credit Agreement, refer to Note 7 of the notes to consolidated financial statements in this report. The Credit Agreement contains financial covenants that require us to maintain specified ratios or levels at September 30, 2018 of (1) a maximum total funded debt to EBITDA of 3.50 and (2) a minimum total fixed charge coverage of 1.50. We were in compliance with all of the financial covenant requirements of the Credit Agreement as of September 30, 2018.

Cash Flows Provided by Operating Activities

Operating a ctivities duri n g the nine months ended September 30, 2018 p rovid e d c a sh of $74.5 mill i on co m par e d to $73.6 million d u ring the nine months ended September 30, 2017. The slight incre a se in operating cash flow is primarily due to an increase in net income, mostly offset by a decrease in cash collections on accounts receivable due to timing.

Cash Flows Used in Investing Activities

Investing a ctivities duri n g the nine months ended September 30, 2018 u s e d $5.0 million in c a sh, co m par e d to $4.0 million d u ring the nine months ended September 30, 2017, wh i ch was primarily due to increased capi t al expenditures primarily related to digital applications and platforms , somewhat offset by proceeds received during the nine months ended September 30, 2018 from a release of escrow funds related to the sale of MeYou Health, LLC in June 2016.

Cash Flows Provided By/Used in Financing Activities

Fina n cing a c t ivities duri n g the nine months ended September 30, 2018 used $96.2 million in c a sh, compared to $68.1 million during the nine months ended September 30, 2017. This change is p r i mari l y due to higher net repayments of debt during the nine months ended September 30, 2018.

C a sh Co n v e rtible S enior Not e s

We repaid the Cash Convertible Notes upon their maturity on July 2, 2018 through a combination of available cash, payments made by the counterparties under the Cash Convertible Notes Hedges, and available credit under the Credit Agreement, as further described in Note 7 of the notes to consolidated financial statements in this report .

For a detailed description of the related warrants, refer to Note 7 of the notes to consolidated financial statements included in this report.

General

We believe that cash flows from operating activities, our available cash, and our anticipated available credit under the Credit Agreement will continue to enable us to meet our contractual obligations and fund our current operations and debt payments for at least 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 .

If contract development accelerates or acquisition opportunities arise, we ma y 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 i n con n e c tion wit h futur e a cquisiti o n s o r strategi c all i a n c e s . W e c an no t a s sur e yo u tha t w e w o ul d b e ab l e t o iss u e additi o na l deb t o r eq uity s e curiti e s on terms that w o uld be favorable to us.

Re c ent Relevant A c cou n ting Standar d s

See Note 2 of the notes to consolidated financial statements included in this report for discussion of recent relevant accounting standards.

Item 3. Qua n tit a ti v e and Qualit a t i v e Disclosu r es Ab o ut M a rket Risk

We are subject to market risk related to interest rate changes, primarily as a result of the Credit Agreement. Borrowings under the Credit Agreement generally 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 affected lenders, twelve-month LIBOR), which may not be less than zero, or (2) the greatest of (a) the SunTrust Bank prime lending rate, (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 varies between 1.50% and 2.75%, and the Base Rate margin varies between 0.50% and 1.75%, depending on our net leverage ratio.

We estimate that a one-po i n t interes t rat e ch a ng e i n o ur f l oatin g rat e deb t w o ul d hav e r e sulte d i n a change in interest expense of approximately $0.2 million for the nine months ended September 30, 2018.

Item 4. Controls and Procedures

E v aluation of Disclo s ure Co n trols a n d Procedu re s

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 30, 2018. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective. 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.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting during the three months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Part II Othe r Infor m ation

Item 1. Legal Proceedings

See Note 8 of the notes to consolidated financial statements included in this report for discussion of recent legal proceedings.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties previously reported under the caption “Part I — Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and under “Part II – Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, the occurrence of which could materially and adversely affect our business, prospects, financial condition and operating results. The risks previously reported and described in our Annual Report on Form 10-K for the year ended December 31, 2017, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and in this report are not the only risks facing our business. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.

Except as disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, there have been no material changes to our risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Item 6. Exhibits

(a)

Exhibits

10.1		Separation and General Release between the Company and Glenn Hargreaves dated as of August 8, 2018

10.2		Offer of Employment Letter between the Company and Ryan Wagers dated as of September 14, 2018

10.3		Amendment to Warrants Transaction, dated as of September 25, 2018, between Tivity Health, Inc. and JPMorgan Chase Bank, National Association, London Branch

10.4		Amendment to Warrants Transaction, dated as of September 26, 2018, between Tivity Health, Inc. and Morgan Stanley & Co. International plc

31.1		Certificatio n pursuan t t o sectio n 30 2 o f th e Sarbanes- O xle y Ac t o f 200 2 mad e b y Donat o Tramuto , Chie f Executive Officer

31.2		Certificatio n p u rsuan t t o s e ctio n 3 0 2 o f th e Sarban e s-Oxle y Ac t o f 200 2 mad e b y Adam Holland , Chie f Fina n cial Officer

32		Certificatio n Pursuan t t o 1 8 U.S .C sect i o n 135 0 a s adopte d pursuan t t o Sectio n 90 6 o f th e Sarbanes-Oxle y Ac t of 200 2 m a d e b y Donat o Tr a muto , Chie f Executiv e Offic e r , an d Adam Holland , Chie f Fin a nc i al Officer

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNA T UR E S

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.

			Tivity Health, Inc.
			(Registrant)

Date:	November 6, 2018	By	/s/ Adam Holland

			Chief Financial Officer
			(Principal Financial Officer)

Exhibit 10.1

SEPARATION AND GENERAL RELEASE AGREEMENT

THIS SEPARATION AND GENERAL RELEASE AGREEMENT (“ Agreement ”) is entered into on the Effective Date as defined herein by and between Glenn Hargreaves (hereinafter generally referred to as “ Mr. Hargreaves ”) and Tivity Health, Inc., and its subsidiaries, affiliates and related entities, with a principal office of 701 Cool Springs Blvd., Franklin, Tennessee 37067 (“ Tivity Health ” or “ Company ”).

WHEREAS Mr. Hargreaves and the Company mutually desire to terminate his employment agreement with the Company, dated as of July 29, 2012 (“ Employment Agreement ”); and

WHEREAS both the Company and Mr. Hargreaves believe it is in their mutual best interests for Mr. Hargreaves to continue as a part-time employee for a period of time following the termination of the Employment Agreement to ensure orderly transition of Mr. Hargreaves’ duties and responsibilities.

NOW THEREFORE, the parties agree as follows:

(1) Termination of Employment Agreement . The Employment Agreement shall terminate as of August 24, 2018. After August 24, 2018, Mr. Hargreaves’ employment will be in accordance with this Agreement.

(2) Consideration . The parties covenant and promise to do the following provided that Mr. Hargreaves signs this Agreement including the General Release:

(a) Mr. Hargreaves shall remain employed by the Company until December 31, 2018 (“Termination Date”). From August 25, 2018 through the Termination Date, (i) Mr. Hargreaves will be required to provide assistance, as requested by the Company, with the transition of his duties and responsibilities, and (ii) the Company will pay Mr. Hargreaves $5,000 per month so long as he remains employed by the Company under this Agreement. Neither the Company nor Mr. Hargreaves will terminate Mr. Hargreaves’s employment prior to the Termination Date unless Mr. Hargreaves engages in conduct constituting “Cause” as defined in the Employment Agreement. Section IX (B)(1) of the Employment Agreement shall remain in effect so long as Mr. Hargreaves is employed. All other provisions of Section IX of the Employment Agreement shall remain in effect so long as Mr. Hargreaves remains employed and for a period of nine (9) months following the termination of Mr. Hargreaves’ employment. No provisions of the Employment Agreement shall survive following the termination of the Employment Agreement except as specifically described in this Section (2)(a).

(b) Mr. Hargreaves will remain bound by the agreements and the plan(s) governing the various equity award agreements to which he is a party and nothing herein shall be construed as a waiver or amendment of such equity award agreements or plan(s).

( c) Mr. Hargreaves will be eligible to receive a bonus payment for performance towards his individual objectives during the period of January 1, 2018 through June 30, 2018. He will not be eligible to receive any other bonus payments for 2018. Bonus payout described in this Section (2)(c), if any, shall be subject to the eligibility requirements of the bonus plan and the customary approval of the Company’s bonus plan by the Compensation Committee of the Company’s Board of Directors.

(3) General Release . In exchange for and in consideration of the promises, obligations, and agreements as set forth in this Agreement, Mr. Hargreaves does hereby irrevocably and unconditionally release, acquit and discharge Tivity Health, any related or affiliated companies and all other subsidiaries, assigns, predecessors or transferees, all present and former directors, officers, insurers, employees, servants and agents of any of them (together, individually and collectively, “ Released Parties ”), from any and all manner of actions, charges, complaints, suits, proceedings, claims, liabilities, obligations, agreements, controversies, demands, costs, losses, debts and expenses whatsoever of any kind or nature, at law or in equity, whether known or unknown, fixed or contingent, choate or inchoate, that Mr. Hargreaves has as of the Effective Date, or ever has had, arising out of or in any way connected with the employment of Mr. Hargreaves by Tivity Health and with his separation from employment with Tivity, if applicable, including but not limited to any and all claims under the Employment Agreement or otherwise for pay, benefits, damages, or any other relief which were, might or could have been asserted in any court, before any arbitrator, or before any administrative agency, including without limitation, the Civil Rights Act of 1991; Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1866; the Americans with Disabilities Act; the Rehabilitation Act of 1973; the Age Discrimination in Employment Act; the Older Workers Benefit Protection Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974; the Equal Pay Act; the Fair Labor Standards Act; the Vietnam Era Veteran's Readjustment Assistance Act; the Uniformed Service Employment and Reemployment Rights Act of 1994; the Worker Adjustment and Retraining Notification Act; the Fair Credit Reporting Act; the Immigration Reform and Control Act of 1986; the Occupational Safety and Health Act of 1970; the Employee Polygraph Protection Act; any and all “whistle blower” employee statutes or regulations (i.e., those providing protection to an employee who raises charges of illegality, impropriety, workplace misconduct, failure to adhere to policies and procedures, etc.), any amendments to any of the foregoing, and any other federal, state, or local statute, regulation, ordinance, or common law, including without limitation any law related to discrimination (i.e., those pertaining generally to race, color, sex, age, religion, national origin, sexual orientation, worker’s compensation or disability), retaliatory discharge (whether actual or constructive, and as and to the extent related to any of the foregoing), terms and conditions of employment, or termination of employment, to the full extent that such a release is allowed by law.

This provision does not include the release of claims with respect to any vested benefits under a plan governed by the Employee Retirement Income Security Act or any claim related to the rights and benefits granted by the express terms of this Agreement. Furthermore, the Company will continue to indemnify, hold harmless, and defend Mr. Hargreaves against any and all claims arising out of, or in connection with, Mr. Hargreaves’ performance of his duties for, and on behalf of, the Company provided that Mr. Hargreaves’ conduct was in the course and scope of his employment and was not fraudulent, grossly negligent or criminal in nature. This duty to indemnify shall be in accordance with the provisions of the directors and officers insurance coverage maintained by the Company and it shall survive the termination, expiration or cancellation of this Agreement.

(4) Period of Time to Consider and Revoke . Mr. Hargreaves has been encouraged by the Company to consult with his attorney before his execution of this Agreement. Mr. Hargreaves was presented with this Agreement on August 8, 2018 and has been advised that he has twenty-one (21) days from August 8, 2018 , to consider executing this Agreement; and that his decision to execute prior to the expiration of such twenty-one (21) day period was knowingly and voluntarily made. Mr. Hargreaves further acknowledges that this Agreement has been individually negotiated and is not part of a group exit incentive or other separation package.

By signing and returning this Agreement to Tivity Health, Mr. Hargreaves acknowledges that he has read carefully and fully understands the terms of this Agreement, has had an opportunity to consult with his attorney prior to signing it and is signing it knowingly and voluntarily and has not been coerced or threatened into signing it or promised anything else in exchange for signing it other than as expressly provided herein.

Furthermore, Mr. Hargreaves is aware that he has a right for a period of seven (7) days following his execution and delivery of this Agreement (the “ Revocation Period ”), to revoke this Agreement. Mr. Hargreaves shall only be entitled to receive the consideration contained in this Agreement upon the following: (1) Mr. Hargreaves’s execution and delivery to Tivity Health of this Agreement; and (2) the Revocation Period has expired.

Mr. Hargreaves must return a copy of the signed Agreement to Mary Flipse via e-mail at Mary.Flipse@tivityhealth.com. Mr. Hargreaves shall deliver any revocation to Ms. Flipse at the same email address. The parties acknowledge that an electronic or .pdf copy of an executed document shall serve the same purpose as an original.

(5) Waiver . Mr. Hargreaves acknowledges that he is aware of his rights under the laws specifically and generally described in this Agreement and that as of the Effective Date, he waives those rights to the fullest extent that waiver is allowed by law. Such waivers are not intended to be, nor shall they be construed that Mr. Hargreaves has any legitimate cause of action that was required to be waived or that Tivity Health had committed any violation required to be waived.

(6) No Further Obligations. Mr. Hargreaves acknowledges that nothing in this Agreement shall be considered or construed as an admission of liability or an admission that Tivity Health has violated any law, regulation or contract (express or implied). Mr. Hargreaves further acknowledges that the promises and payments provided hereunder also represent payment in full in satisfaction and resolution of all potential and/or disputed claims for back pay, severance pay, bonuses, vacation pay (to the extent permitted by applicable law and except to the extent separately paid pursuant to Company policy), compensatory, punitive, and/or liquidated damages, and damages or relief of any kind including costs, attorneys' fees, and expenses arising out of or pertaining to the unasserted claims released by this Agreement. Specifically, Mr. Hargreaves acknowledges that he would not be entitled the payments and benefits described in Section 2 but for this Agreement.

(7) No Pending Complaints . Mr. Hargreaves represents and warrants that he has not filed any complaint(s) or charge(s) against Tivity Health with the Equal Employment Opportunity Commission or the state commission empowered to investigate claims of

employment discrimination, the United States Department of Labor, the Office of Federal Contract Compliance Programs, or with any other local, state or federal agency or court, and that if any such agency or court assumes jurisdiction of any complaint(s) or charge(s) against Tivity Health on behalf of Mr. Hargreaves, then Mr. Hargreaves will request such agency or court to withdraw from the matter and Mr. Hargreaves will refuse any benefits derived therefrom, and the release contained in this Agreement shall apply to such claim. This Agreement will not affect Mr. Hargreaves’s right to hereafter (i) file a charge with or otherwise participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission, although he waives his right to receive any monetary or other benefits from the charge or (ii) report securities violations to the U.S. Securities and Exchange Commission (“SEC”). Mr. Hargreaves represents and warrants that he has no knowledge of any practice engaged in by Tivity or its employees that is or was a violation in any material respect of any applicable state law or regulations or of any federal law or regulations including, but not by way of limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. Mr. Hargreaves further acknowledges that he is not personally aware of any violations of, nor has he violated, any provisions of the Company’s Code of Business Conduct.

Mr. Hargreaves further agrees to neither institute nor in any manner voluntarily participate in, as a class member or otherwise, any civil action or arbitration against Tivity Health which is now pending or may hereafter be brought that concerns any matter encompassed by this Agreement.

(8) Effective Date . This Agreement shall become effective on the last of eight (8) calendar days following the date Tivity Health receives from Mr. Hargreaves a signed Agreement that has not been revoked prior to the last of those eight (8) calendar days (“ Effective Date ”).

8/18/18	/s/ Glenn Hargreaves
Date	Glenn Hargreaves

8/18/18	/s/ Mary Flipse
Date	Tivity Health, Inc.

	By:	Mary Flipse
		(print name)

Exhibit 10.2

September 10, 2018

Ryan Wagers

Address on file

Dear Ryan,

We are delighted to confirm our offer to you to join Tivity Health! We anticipate your start date to be no later than October 15, 2018. Your role at Tivity Health will be SVP Finance, Chief Accounting Officer & Treasurer, reporting to Adam Holland. In this position, you will play a pivotal role in delivering on our purpose: To empower older adults to live their best lives – with vitality, dignity and purpose.

Our culture is one that fosters empowerment, excellence and engagement. We are transforming the aging experience – reducing the burden of chronic conditions among older adults, enabling these to be their best years, and inspiring the next generation that the best is yet to come. Our collective commitment to this vision is foundational to our culture. It motivates us, connects us and makes Tivity Health a meaningful and fun place to work.

As part of your commitment to your position, you will be expected to follow all Tivity Health policies and procedures, including our Code of Business Conduct.

We are excited that you are joining our team, and look forward to working with you.
Now, the good stuff:

Compensation and Benefits

•

Your base salary will be $260,000 or $10,000.00 payable bi−weekly.

•

Your role makes you eligible to participate in Tivity Health’s Colleague Bonus Program consistent with your position and plan provisions.* The bonus target for your new position is 35% of your fiscal year eligible base pay earnings. Payout is not guaranteed, but is contingent upon achievement of company and individual performance objectives. Should your role change during the year, your bonus eligibility and target may be adjusted accordingly. All colleagues must be actively employed through the end of the performance period to be eligible.

Ryan Wagers offer letter, page 2

SVP Finance, Chief Accounting Officer & Treasurer

•

Eligibility for our Long Term Incentive (LTI) plan, currently with a target of $ 1 35 ,000 . Our LTI plan may consist of stock options, restricted stock units, performance stock units , market stock units, restricted cash and/or performance cash depending on the annual determination of the Compensation Committee of the Board of Directors.

•

A one-time 2018 Long Term Incentive (LTI) award valued at $45,000. This LTI award will consist of stock options and restricted stock units.

•

You will receive a one-time signing bonus of $20,000, $10,000 of which will be payable after 30 days of employment and $10,000 of which will be payable on January 11, 2019. Your signing bonus is contingent upon the execution of the Bonus Repayment Agreement.

•

As a full−time, exempt employee, you will be eligible to receive our full benefits package following your eligibility waiting period for each of the plans. We have enclosed a summary of our benefits for your review.

•

If you’re at least 21 years old, you are eligible to participate in our 401(k) program on your first day of employment. In support of your financial well-being, you will automatically be enrolled in the plan after 90 days of employment if you haven’t already made elections. You may enroll at www.401k.com to select or change your deferral rate at any time.

Like all responsible companies, Tivity Health has a few conditions that come along with this offer.

Prior Employment

You represent that you are not subject to any non-competition provisions or restrictive covenants that would prevent or affect your acceptance of this offer of employment and the performance of your employment obligations at Tivity Health. You further represent that the performance of your employment obligations will not violate or breach any other agreement or arrangement with a prior employer. In your work for the company, you will be expected not to use or disclose any confidential or proprietary information or trade secrets of any prior employer or other person to whom you have an obligation of confidentiality.

Restrictive Covenants

Upon acceptance of this offer, you understand and agree that your employment is contingent upon your execution of and delivery to the company of a Trade Secret and Proprietary Information Agreement enclosed. To translate, that means you need to protect our proprietary information. You also agree to comply with all policies related to the acceptable use of all systems and information assets of the company during your employment.

Ryan Wagers offer letter, page 3

SVP Finance, Chief Accounting Officer & Treasurer

At-Will Employment

You understand that your employment with Tivity Health is for an unspecified duration that constitutes at-will employment and that either you or the company can terminate this relationship at any time, with or without cause.

Company Events and Activities

While here, you’ll have the opportunity to participate in a number of engaging activities and events. During these events, we take photos and share them across our sites. Sometimes those photos, stories, and videos are used for other purposes, such as recruiting videos, sales or client meetings, and even Board meetings.

Background Check

You understand that this offer is contingent upon the successful completion of our background check process.

Please return a signed copy of this offer letter to your Talent Acquisition Partner. Feel free to contact them directly should you have any questions or need assistance with the enclosed materials.

Welcome!

Talent Acquisition Team

Tivity Health

Acknowledged and Agreed:

/s/ Ryan Wagers

Ryan Wagers

9/14/18

DATE

*Colleagues who are bonus-eligible and begin employment prior to October 1 will participate in the current year's plan. Colleagues who are bonus-eligible and hired on or after October 1 will be eligible to participate in the following year's plan, which is subject to approval (including targets) by the Compensation Committee of the Board of Directors.

Addendum to Offer Letter for Ryan Wagers dated September 10 , 2018

Termination Provisions:

If your employment is terminated at any time without Cause ⁽¹⁾ or if you terminate your employment for Good Reason ⁽²⁾ , you will be entitled to receive:

•

All base salary and benefits due through the date of termination payable within thirty (30) days of the date of termination, with the date of such payment determined by the Company in its sole discretion.

Upon your execution of a full release of claims in favor of the Company, provided that such release must be executed and become effective and any revocation period must expire within sixty (60) days of the date of termination, you will also be entitled to receive:

•

An amount equal to your base salary for a total of twelve (12) months following the date of termination. ⁽³⁾

•

Group medical benefits for twelve (12) months after the date of termination. The costs of the Company's portion of any premiums due will be included in your gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended. ⁽³⁾

⁽¹⁾ The following events constitute “Cause” for termination:

•

Continued failure to substantially perform your duties after written notice and failure to cure within sixty (60) days;

•

Arrest relating to a felony or engaging in misconduct that is materially injurious to the Company, monetarily or to its reputation or otherwise, or that would damage your ability to effectively perform your duties;

•

Theft or dishonesty by you;

•

Intoxication while on duty; or

•

Willful violation of Company policies or procedures after written notice and failure to cure within thirty (30) days.

⁽²⁾ You may terminate your employment by written notice of your resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute "Good Reason" for resignation and together shall be "Good Reason Events":

a. a material reduction in your base salary (unless such reduction is part of an across-the-board reduction affecting all Company executives with a comparable role or title); and

b. a requirement by the Company to relocate your residence, unless such relocation is mutually agreed upon by you and the Company.

You shall give the Company written notice of your intention to resign for Good Reason within sixty (60) days after the occurrence of one of the Good Reason Events. The notice must state with reasonable specificity the Good Reason Event. Thereafter, the Company shall have sixty (60) days (the "Cure Period") to rescind the Good Reason Event(s). If the Company rescinds the Good Reason Event(s) within the Cure Period, you no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then you may resign for Good Reason as long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period; otherwise the right to resign on the basis of such Good Reason Event(s) shall be deemed to have been waived.

⁽³⁾ These amounts will be paid to you periodically at the Company's regular payroll dates commencing within sixty (60) days following the date of termination (the commencement date will be determined by the Company, in its sole discretion). These amounts may cease prior to the 12-month period if you have access to your partner’s health insurance coverage.

Exhibit 10.3


JPMorgan Chase Bank, National Association	Execution Version
London Branch
25 Bank Street
Canary Wharf
London E14 5JP
England


			September 25, 2018
To:	Tivity Health, Inc.
	701 Cool Springs Boulevard
	Franklin, TN 37067
	Attention:	Chief Financial Officer
	Telephone No.:	615-614-4929
	Facsimile No.:	615-778-0486

Re:	Amendment to Warrants Transaction

This letter agreement (this “ Amendment ”) amends the terms and conditions of the transactions (the “ Transaction ”) evidenced by the letter agreement re: Base Warrants dated as of July 1, 2013 and the letter agreement re: Additional Warrants dated as of July 11, 2013 (each as amended or modified prior to the date hereof, together the “ Confirmations ”), each between JPMorgan Chase Bank, National Association, London Branch (“ Dealer ”) and Tivity Health, Inc. (f/k/a Healthways, Inc.) (“ Company ”).

1. Definitions . Capitalized terms used herein without definition shall have the meanings assigned to them in the Confirmations.

2. Representations and Warranties . Each party represents to the other party that:

(a) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation;

(b) it has the entity or corporate power to execute and deliver, and perform its obligations under, this Amendment, and has taken all necessary entity or corporate action to authorize such execution, delivery and performance;

(c) such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its organizational documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

(d) all governmental and other consents that are required to have been obtained by it with respect to this Amendment have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(e) its obligations under this Amendment constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43240
Registered as a branch in England & Wales branch No. BR000746
Registered Branch Office 25 Bank Street, Canary Wharf, London E14 5JP
Authorised by the Office of the Comptroller of the Currency in the jurisdiction of the USA.
Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct
Authority and to limited regulation by the Prudential Regulation Authority. Details about the
extent of our regulation by the Prudential Regulation Authority are available from us on request.

3 . Amendment . Notwithstanding anything to the contrary in the Confirma tion s or the Equity Definitions:

(a) any deliveries of Shares in respect of Expiration Dates expected to occur as of the date hereof shall instead be aggregated and occur on a weekly basis, as follows: for each Expiration Date occurring in a calendar week, the related Settlement Date shall occur on the first Exchange Business Day occurring in the immediately following calendar week (or, if such date is not a Clearance System Business Day, the next following Clearance System Business Day), subject to Section 9(k)(i) of the Confirmations;

(b) any payments of Fractional Share Amounts , if any, in respect of any Expiration Dates expected to occur as of the date hereof shall instead be aggregated and occur on the final Settlement Date (determined in accordance with clause (a) above).

4. No Other Changes . Except as expressly set forth herein, all of the terms and conditions of the Confirmations shall remain in full force and effect, including, but not limited to, Dealer’s right to postpone or add Expiration Dates pursuant to the “Right to Extend” or “Procedures for Exercise” provisions, in which case settlement in respect of such additional dates shall occur in accordance with the terms of the Confirmations.

5. No Reliance . Each of Company and Dealer hereby confirms that it has relied on the advice of its own counsel and other advisors (to the extent it deems appropriate) with respect to any legal, tax, accounting, or regulatory consequences of this Amendment, that it has not relied on the other party or such other party’s affiliates in any respect in connection therewith, and that it will not hold the other party or such other party’s affiliates accountable for any such consequences.

6. Role of Agent . Each party agrees and acknowledges that (i) J.P. Morgan Securities LLC, an affiliate of Dealer (“ JPMS ”), has acted solely as agent and not as principal with respect to this Amendment and (ii) JPMS has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of this Amendment. Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under this Amendment.

7. Counterparts . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all of the signatures thereto and hereto were upon the same instrument.

8. Governing Law . The provisions of this Amendment shall be governed by the laws of the State of New York law (without reference to choice of law doctrine).

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Amendment and returning it to J.P. Morgan Securities LLC, 383 Madison Ave, New York, NY 10179, and by email to EDG_Notices@jpmorgan.com and EDG_NY_Corporate_Sales_Support@jpmorgan.com .


Very truly yours,

	J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association

	By:	/s/ Kevin Cheng
	Authorized Signatory
	Name: Kevin Cheng

Accepted and confirmed
as of the date set forth above:


Tivity Health, Inc. (f/k/a Healthways, Inc.)

By:	/s/ Adam Holland
Authorized Signatory
Name: Adam Holland

Exhibit 10.4

Morgan Stanley & Co. International plc

c/o Morgan Stanley & Co. LLC
1585 Broadway, 5 ^th Floor
New York, NY 10036

September 26, 2018

To:	Tivity Health, Inc. 701 Cool Springs Boulevard Franklin, TN 37067 Attention: Chief Financial Officer Telephone No.: 615-614-4929 Facsimile No.:615-778-0486

Re:	Amendment to Warrants Transaction

This letter agreement (this “ Amendment ”) amends the terms and conditions of the transactions (the “ Transaction ”) evidenced by the letter agreement re: Base Warrants dated as of July 1, 2013 and the letter agreement re: Additional Warrants dated as of July 11, 2013 (each as amended or modified prior to the date hereof, together the “ Confirmations ”), each between Morgan Stanley & Co. International plc (“ Dealer ”) and Tivity Health, Inc. (f/k/a Healthways, Inc.) (“ Company ”).

1. Definitions . Capitalized terms used herein without definition shall have the meanings assigned to them in the Confirmations.

2. Representations and Warranties . Each party represents to the other party that:

(a) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation;

3. Amendment . Notwithstanding anything to the contrary in the Confirmations or the Equity Definitions:

6. Role of Agent . Each party agrees and acknowledges that (i) Morgan Stanley & Co. LLC, an affiliate of Dealer (“ MS&CO ”), has acted solely as agent and not as principal with respect to this Amendment and (ii) MS&CO has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of this Amendment. Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under this Amendment.

8. Governing Law . The provisions of this Amendment shall be governed by the laws of the State of New York law (without reference to choice of law doctrine).

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Amendment and returning it by email to Usman.S.Khan@morganstanley.com.

Very truly yours,


Morgan Stanley & Co. LLC, as agent for Morgan Stanley & Co. International plc

By:	/s/ Darren McCarley
Authorized Signatory
Name: Darren McCarley, Managing Director

Accepted and confirmed
as of the date set forth above:


Tivity Health, Inc. (f/k/a Healthways, Inc.)

By:	/s/ Adam Holland
Authorized Signatory
Name:Adam Holland

[ Signature Page to Amendment to Warrant Confirmations ]

Exhibit 31.1

CERTIFICATION

I, Donato Tramuto, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tivity Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2018

	/s/ Donato Tramuto
	Donato Tramuto
	Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Adam Holland, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tivity Health, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2018

	/s/ Adam Holland
	Adam Holland
	Chief Financial Officer

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tivity Health, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Donato Tramuto, Chief Executive Officer of the Company, and Adam Holland, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Donato Tramuto

Donato Tramuto

Chief Executive Officer

November 6, 2018

/s/ Adam Holland

Adam Holland

Chief Financial Officer

November 6, 2018