MEDIFAST INC

Good day and welcome to the Medifast Inc. First Quarter Fiscal 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. Please note this event is being recorded. I would now like to turn the conference over to Scott VanWinkle. Please go ahead.

Good afternoon. Welcome to METAFAST's first quarter 2020 earnings conference call. On the call with me today are Dan Chard, Chief Executive Officer, and Joe Kellerman, Interim Chief Financial Officer. By now, everyone should have access to the earnings release for the period ended March 31, 2020 that went out this afternoon at approximately 4 or 5 p.m. Eastern Time. If you've not received the release, It is available on the investor relations portion of Medifast's website at www.medifastinc.com. This call is being webcast and a replay will be available on the company's website. Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The words believe, expect, anticipate, and other similar expressions generally identified forward-looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. Actual results could differ materially from those projected in any forward-looking statements. METAFAST assumes no obligation to update any forward-looking projections that may be made in today's release or call. All the forward-looking statements contained herein speak only as of the date of this call and with that I'd like to turn the call over to Medifast's Chief Executive Officer, Dan Chard.

Thank you, Scott, and good afternoon to everyone joining us. Thank you for taking time to be with us today. On the call with me today is Joe Kellerman, who was appointed Interim Chief Financial Officer in early March. Joe has had a distinguished career with Medifast since joining in 2012, serving in a series of senior financial roles since that time, including Corporate Controller and Vice President of Finance. He also served as interim chief financial officer of the company in 2013. He will lead the finance function until a permanent appointment is made. We are currently conducting an extensive search for a CFO that will lead the company into our next phase of growth. I'll start today's call by giving you a brief overview of our first quarter performance and an update on how our business was impacted in the quarter by the economic and social disruption related to the COVID-19 pandemic. I will also share with you what we're doing in the current quarter to adapt to the new business environment to ensure that we continue to deliver long-term growth in the growing health and wellness marketplace. Then Joe will review Q1 financial results in more detail. We'll then both be available to take your questions. I'm pleased to report that Medifast delivered above the high end of our guidance on both the top and bottom line during the first quarter, reporting revenues of $178.5 million. Non-gap adjusted earnings per diluted share, which excludes expenses in connection with the Schedule 13D filing and severance costs, was $1.93 in the quarter. This growth was driven by continued improvement in the number of active earning coaches on both a year-over-year and a sequential basis, sporting the highest level in the company's history with 32,600 coaches at the end of the first quarter. The resumption of coach growth is a clear demonstration of the underlying health and strength of our business and an indication of the way our differentiated offer continues to resonate with prospective clients and coaches as we focus on delivering our mission of offering the world lifelong transformation one healthy habit at a time. We've been working diligently to build further momentum in attracting new clients and sponsoring new coaches and saw encouraging progress as we moved through the first quarter. Perhaps not surprisingly, there was some downward pressure with both client acquisition and coach sponsorship at the end of the first quarter and in early April as the coronavirus pandemic began to impact the macro environment. However, we've been encouraged by the new client and new coach numbers we've seen in recent weeks as people adjust to the new normal and prospective coaches and clients respond to programming changes we made in late March and early April. The health and wellness services and products we offer provide a proven solution to help clients achieve their healthy weight as well as learn and incorporate other healthy habits in their lives to achieve optimal health. Further, the addressable market remains significant as the focus on health and well-being is projected to continue its growth. In fact, as people slowly move out of a more sedentary period, As mandated by the stay-at-home orders, we believe there will be an increased demand for solutions which help people lose weight, regain fitness and focus on their long-term health. As a company, we have worked and invested extensively in the past several years to fully integrate our operating infrastructure through cloud-based technology and remote training and communication practices. We feel confident in our ability to operate effectively in this new and changing environment. We've made all the necessary adjustments to our processes and procedures to ensure that we deliver excellence in service and can execute against our long-term growth opportunity. In particular, we have completed extensive work on our technology and supply chain infrastructure and as a result, our performance in these areas continues to meet historical standards as we continue to see marked improvements in the key metrics we use to track client and coach satisfaction. We believe our long-term sustainable revenue growth outlook will be unaffected and that our ability to drive shareholder value remains intact. As a result, we remain committed to our dividend policy, which reflects the strength of our balance sheet, our highly attractive business and financial model and the confidence of the board and the management team in our ability to deliver against our goals. Over 85% of our revenue is generated from subscription orders, providing a strong recurrent revenue source, which has remained strong in the face of the pandemic and uncertain economic environment. Additionally, approximately 80% of our expenses are variable, which allows us to stay nimble and quickly adjust our spending where necessary. This combination provides important consistency and confidence in our financial outlook. This has obviously been a period of adjustment and adaption for populations across the world, and consumers are distracted from their day-to-day activities as a result. However, our organization, including our network of more than 30,000 Optivea coaches, has been built to be highly adaptable and that has been particularly evident during the past six weeks or so. I'm very encouraged by the resilience of our employees, our coaches, and our clients and I'm appreciative of everybody's efforts. Productivity across the organization is very high, providing a virtually seamless operating environment. While the vast majority of our employees have transitioned to working from home, Our manufacturing and distribution facilities are operating uninterrupted as they provide essential food products. Our customer service and support functions are also operating very well, and we are delivering a high level of service to our coaches and clients with strong feedback from the field. Speaking of the field, we've already transitioned our annual convention from a live in-person event to a virtual conference to be held during the same period of time as our previously Thank you for joining us. which bring with them the ability to reach farther and greater number of people than traditional in-person events at a fraction of the cost. We have some exciting plans in place for ensuring no level of drop-off in connection and energy and look forward to the long-term learnings such events can provide for our business. This is a business that has been operating for more than 18 years now and the majority of our coaches started as clients who were successful using our programs, products and services. That means that our leadership has strong personal experiences of what works, put that to successful use every day. Our field-led communications are particularly strong as a result. As an example, at the height of the pandemic in April, our coach leaders held a highly successful virtual coach training event called Business Momentum 2020 at Home. This was attended by a remarkable 8,300 registered participants and included sessions for coaches and clients as well as guests. Training was provided around the four skills of acquiring new clients, supporting clients, sponsoring coaches, and developing coach leaders. This was a phenomenal response during a challenging time for individuals and it was a demonstration of how much our offering resonates with people as they address issues around health and wellness. Along with engaging the field through top-down and bottom-up events, we continue to create new ways to maintain demand for our business and grow our client and coach base. As part of adjusting to the new operating environment, we've made several changes to our planned programming at the end of Q1 and in Q2. For example, in March, we introduced an incentive called Forward in Health, an incentive designed to support new client growth and new coach sponsorship, as well as reactivation of former clients. In April, we also introduced a new promotion called Essential Start, which is a limited time offer of a discounted Essential 5-in-1 kit to help coaches assist new clients as they start their health journey. These promotions support new client enrollment in an Optivia Premier subscription order and the Habits of Health transformation system. Because of the positive results in April, we have extended this promotion through May and expanded it into the Asia-Pacific region as well. As a result of training, incentives, and promotions, we have seen a substantial improvement in new client acquisition and new coach sponsoring since mid-April. We've also seen significant increases in page views in our OPTAVIA business management tool for coaches, which is an early indication of the engagement of our OPTAVIA coaches. While we're still in the early stages of the execution of these programs, the results have been encouraging. We will be working to build on this impact over the coming months. Our investment in technology and operations also continues. We launched our new enterprise resource planning system or ERP system this month with the support of our consultant, Deloitte. The new cloud-based ERP system is expected to improve production and forecasting, order management, inventory control, and provide the incremental capacity to support growth in the orders. Our testing over the last 12 months has been completed and we are confident with the implementation. Our expansion into Asia Pacific markets remains an important part of our long-term mission and growth strategy. We're still at the early stages of development of our first two markets, Hong Kong and Singapore, and we are encouraged by the development of these markets as we continue to increase service and support to improve coach and client experience. On April 6th, we opened our Hong Kong distribution facility, 20,000 foot facility will significantly reduce the delivery times and logistic costs in our open Asian markets and provide a base for future expansion across Asia in the future. We also plan to expand our support footprint by adding a contact center in Manila during Q2, provided the pandemic-related restrictions are lifted. As part of our strategy to build and innovate our mobile platform and other digital technologies, we have moved forward with plans to open a satellite office in Salt Lake City, Utah. Employees in that location will include the leadership team responsible for digital product management, QA engineering, and our global contact management operations. This office will open in August and will scale to 15 to 20 employees over the next 12 to 18 months. The team will work in tandem with our Baltimore-based IT team to support the upcoming launch of our digital mobile platform currently scheduled for a beta launch in the third quarter of this year. As I mentioned before, I'm very proud of the efforts of the entire organization and our coach network in giving back to the community, but particularly in today's challenging times. 2018, we announced our philanthropic initiative, Healthy Habits for All. The program is designed to provide the education and access necessary to make healthy habits a reality for everyone, especially those in underserved communities. We pledged to donate more than $2.5 million The local and national nonprofits through 2023. As the public grapples with the devastating impact of COVID-19, we quickly mobilize our employees and coaches to provide additional relief for vulnerable populations across the country. We partnered with No Kid Hungry, which provides emergency grants and other assistance to help make sure that children who rely on free and reduced price lunches at schools do not suffer from a lack of healthy food as schools have transitioned Thank you for joining us today. have made in adapting to today's challenges and paying it forward to support our community. Our business is at the heart of a $230 billion health and wellness industry. This dedication is the foundation of our success. Like all companies, we must adapt to health and economic challenges across the globe, but we are confident in our mission and our business and growth opportunity. We are in a very strong financial position in a large and growing addressable market with a competitive advantage that we are leveraging for sustainable growth for the long term. We enjoy a business model that can not only offer physical help but also financial help to our clients and coaches, positioning us well in both the short term and the long term. Now let me turn the call over to Joe.