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

Our Healthcare segment earns revenue from three programs, SilverSneakers senior fitness, Prime Fitness and WholeHealth Living. We provide the SilverSneakers senior fitness program to members of Medicare Advantage and Medicare Supplement plans through our contracts with 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.

Except for Prime Fitness, our Healthcare segment’s customer contracts generally have initial terms of approximately three years. Some contracts allow the customer to terminate early and/or determine on an annual basis to which of their members they will offer our programs. For Prime Fitness, our contracts with employers, commercial health plans, and other sponsoring organizations generally have initial terms of approximately three years, while individuals who purchase the Prime Fitness program through these organizations may cancel at any time (on a monthly basis) after an initial period of one to three months. The significant majority of our Healthcare segment’s customer contracts contain 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 months ended March 31, 2020 from performance obligations satisfied in a prior period.

Our fees within the Healthcare segment are variable month to month and are generally billed per member per month (“PMPM”) or billed based on a combination of PMPM and member visits to a network location. We bill PMPM fees by multiplying the contractually negotiated PMPM rate by the number of members eligible for or receiving our services during the month. We bill for member visits approximately one month in arrears once actual member visits are known. Payments from customers are typically due within 30 days of invoice date. When material, we capitalize costs to obtain contracts with customers and amortize them over the expected recovery period. At March 31, 2020 and December 31, 2019, $0.6 million and $0.5 million, respectively, of such costs were capitalized. During the three months ended March 31, 2020 and 2019, the amortization of such capitalized costs was immaterial.

Our Healthcare segment’s customer contracts include variable consideration, which is allocated to each distinct month over the contract term based on eligible members and/or member visits each month. The allocated consideration corresponds directly with the value to our customers of our services completed for the month. Under the majority of our Healthcare segment’s contracts, we recognize revenue each month using the practical expedient available under ASC 606-10-55-18, which provides that revenue is recognized in the amount for which we have the right to invoice.

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

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

(In thousands)	Three Months Ended March 31,
	2020		2019
SilverSneakers	$	121,606	$	123,024
Prime Fitness		32,810		28,743
WholeHealth Living		5,049		4,575
Other		227		185
	$	159,692	$	156,527

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

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

Products sold through the direct to consumer channel, both frozen and non-frozen, may be sold separately (a la carte) or as part of a packaged monthly meal plan for which Nutrition segment customers pay at the point of sale. Products sold through QVC are payable by QVC upon our shipment of the product to the end consumer. For both the direct to consumer channel and QVC, we recognize revenue at a point in time, i.e., at the shipping point. Direct to consumer customers may return unopened ready-to-go Nutrisystem products within 30 days after purchase in

order to receive a refund or credit. Frozen Nutrisystem products are refundable only if the order is canceled within 14 days after delivery. South Beach Diet products are not refundable.

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

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

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

Sales and other taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a Nutrition segment customer are excluded from revenue and presented on a net basis. After control over a product has transferred to a Nutrition segment customer, shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in revenue and cost of revenue in the accompanying consolidated statements of operations. Revenue from shipping and handling charges for the three months ended March 31, 2020 and 2019 (from March 8, 2019 forward) was $6.5 million and $1.8 million, respectively.

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

(In thousands)	Three Months Ended March 31,
	2020		2019
Direct to consumer	$	168,154	$	52,654
Retail		5,448		4,304
QVC		4,187		522
Other		174		87
	$	177,963	$	57,567

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

(In thousands)	March 31, 2020		December 31, 2019
Contract assets	$	250	$	95
Contract liabilities	$	13,403	$	10,911

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

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

	Three Months Ended March 31,
(In thousands)	2020
Revenue recognized that was included in the contract liability (deferred revenue) balance on January 1, 2020	$	(5,717	)
Increases due to cash received for prepaid gift cards sold or unshipped food, excluding amounts recognized as revenue	$	8,209

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

(In thousands)
Remaining 2020	$	3,875
2021		2,366
2022		966
2023		382
2024		267
2025		202
	$	8,058

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

We review the reserves for our Nutrition segment customer returns at each reporting period and adjust them to reflect data available at that time. To estimate reserves for returns, we consider actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, we will adjust the reserve, which will impact the amount of revenue recognized in the period of the adjustment. The provision for estimated returns for the three months ended March 31, 2020 and 2019 (from March 8, 2019 forward) was $5.2 million and $1.4 million, respectively. At March 31, 2020 and December 31, 2019, the reserve for estimated returns incurred but not received and processed was $1.7 million and $0.8 million, respectively, and has been included in accrued liabilities in the accompanying consolidated balance sheet.