MEDIFAST INC

Good afternoon and welcome to the Medifast second quarter fiscal 2020 earnings conference call. All participants will be in a 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 touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Van Winkle. Please go ahead.

Good afternoon, and welcome to MediFast's second quarter 2020 earnings conference call. On the call with me today are Dan Chard, Chief Executive Officer, and Jim Maloney, Chief Financial Officer. By now, everyone should have access to the earnings released for the period into June 30, 2020, that went out this afternoon at approximately 4 or 5 p.m. Eastern Time. If you have 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 would like to remind everyone that 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 identify 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 statement. METAFAST assumes no obligation to upload and update any forward-looking projections that may be made on today's release or call. All the following statements contained herein speak only as of the date of this call, and with that, I'd like to turn the call over to METAFAST Chief Executive Officer, Dan Chard.

Thank you, Scott, and good afternoon to everyone joining us. Thank you for taking the time to be with us today. On the call with me today is Jim Maloney, who recently joined us as Chief Financial Officer. Jim brings to Metafast great experience as a public company CFO, as well as an international operating and food industry expertise. With years spent in businesses including L.B. Foster Company, First Insight, H.J. Hines, and Ernst & Young, Jim will bring important insights and understanding to the business, and I'm very pleased to introduce him today, and we're all excited that he's joined the team. After I've provided some updates on our business performance over the course of the last quarter, Jim will review the Q2 financial results in more detail. We'll then open up the call to take your questions. I'm pleased to say that Medifast had a strong second quarter as the trends we saw in April accelerated during the period. Revenue increased 18% to $220 million and non-GAAP adjusted earnings per diluted share increased 12% to $1.96. This growth was driven by robust year-over-year and sequential improvements in the number of active earning coaches with 36,500 coaches at the end of the quarter, which was a new record level. Productivity per active earning coach also increased during the quarter to $5,000 Thank you for joining us today. The survey uncovered that 88% of Americans are currently experiencing stress and 82% are concerned about at least one aspect of their physical or mental health. To reflect our understanding of this unique and broad-based consumer health challenge, we've worked with our coaches to refine how we position and support our business for the balance of the year. In Q2, we introduced a key initiative that combined coach skill development This initiative ran from March through May and helped drive significant increases in two of our key growth metrics, new client acquisition and coach sponsorship. We're encouraged by the early results as it demonstrates the relevance of Optivia even during this global pandemic, as well as our ability to adapt quickly and successfully to a shifting business environment, both in the context of the pandemic, but also related to the changing environment beyond the pandemic. Our focus as we move into the third quarter remains on continuing to drive demand for our products and services while providing an exceptional experience for our coaches and clients. With new learning and insights about the current business environment, we've significantly modified our programs for the back half of the year. The pandemic led to the decision to develop A digital-first approach to the business with the production of a high-profile virtual event called OPTAVIA Together Live, which was being live across the globe from July 24th through the 26th. The event replaced our planned in-person convention, which was due to be held in Atlanta at the same time. Instead of our anticipated audience of 10,000 of our OPTAVIA coaches at the Atlanta convention, and Heather Live allowed us to attract more than 50,000 unique registrants including coaches, clients and prospective clients. Our reach was further magnified with over 140,000 views on Facebook as coaches hosted watch parties and live events on social media. While we're still analyzing the impact of the event, initial indications are incredibly positive. To build effectiveness further, we have added an incentive to promote leadership development within the ranks of our coaches. This incentive began on August 3rd and will run through the end of the month. This incentive will partially replace the qualification program we would typically run for the 2021 Leadership Advancement Trip, which has been canceled because of the ongoing uncertainties around the travel environment. As an organization, we continue to successfully manage our business operations in this new dynamic business environment. All employees not engaged in manufacturing and distribution continue working effectively remotely. We are leveraging technology to ensure strong productivity and business operations, and we continue to invest in new technology to support our growing business. Our new ERP system went live on May 1st with the support of Deloitte. We continue to work to optimize this important technology and anticipate driving new capability and enabling significant scalability as a result. Our investments in supply chain, including the opening of our Hong Kong distribution center early in the quarter, went well, and we continue to invest in the resources to support our growth. We also opened our new call center in the Philippines on June 7th, and we are scheduled to open an additional call center in Colombia The restructuring of our call center operations is designed to improve service levels to our U.S. and Asia Pacific markets as well as optimize our overall cost structure. Asia Pacific continues to be an important part of our mission and shows sequential quarterly growth as we continue to drive our coach and client base in the region through enriched service and support. The opening of our Salt Lake City Technology Center to support our coach and client-facing technologies remains on track for Q3. This center is another example of the initiatives we have been putting in place over the last year to improve client experience and address the short-term challenges created by our rapid growth in late 2019. We continue to build on the operational improvements we saw earlier this year and our controls around financial payments are working effectively, maintaining bad debt at historical levels. Each of our business operations have continued operating throughout the pandemic Thank you for joining us today. and increasingly relevant resources as the pandemic continues. We also recognize that racism and hatred continue to plague our world and we must do better. As a first step, Medifast pledged $100,000 to nonprofits that address social injustice and racial equity. We are committed to do better, both through monetary donations and through company diversity and inclusion programs. As the impact of COVID-19 continues to be felt, We believe our health and wellness services and products are becoming increasingly important. Our solution for physical health and mental wellness through lifelong transformation, one healthy habit at a time, along with our solution for financial health in the form of business opportunity for clients that choose to pursue coaching, is perhaps more relevant today than ever. With a large addressable market and an industry-leading product and service solutions, we are well positioned to drive long-term sustainable growth. We remain focused on driving shareholder value, leveraging our strong balance sheet and highly attractive and flexible operating model. We're in an enviable position to weather continued challenges. Our financial strength, resilient cash flow profile, recurring revenue model where 95% of our revenues are generated from subscription orders and a highly variable cost structure that allows us to quickly adapt to any economic challenges are important drivers to our business. We also remain committed to our dividend and have the capacity to utilize our share repurchase authorization to further drive shareholder value. It is now my pleasure to introduce you to Jim Maloney, who will walk you through the financial results.