MEDIFAST INC

Good day and welcome to the METAfast third quarter 2021 earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for 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 that today's event is being recorded. At this time, I would like to turn the conference over to Reed Anderson with ICR. Please go ahead.

Good afternoon, and welcome to METAFAS' third quarter 2021 earnings conference call. On the call with me today are Dan Chard, Chairman and Chief Executive Officer, and Jim Maloney, Chief Financial Officer. By now, everyone should have access to the earnings release for the period ended September 30, 2021, and 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 MetaFast's website at www.metafastinc.com. This call is being webcast, and a replay will be available on the company's websites. Before we begin, we would 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 identify forward-looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. All of the forward-looking statements contained herein speak only as of the date of this call. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or call. And with that, I would like to turn the call over to Medifast Chairman and Chief Executive Officer, Dan Chard.

Thank you, Reid, and good afternoon, everyone. Thank you for taking time to be with us. On the call with me today is Jim Maloney, our Chief Financial Officer. I'll start with an overview of the third quarter Then Jim will run through our financial results in more detail. Following our prepared remarks, we will open up the call for your questions. This has been another strong quarter for MetaFast, with positive trends across our business and solid growth in both revenue and earnings. Compared to the same time period last year, revenue increased 52.3% to $413.4 million in the third quarter, while earnings per diluted share rose 22.3%, As planned, we ran our business builder promotion in August, consistent with the prior two years. This promotion focuses on driving coach growth by incentivizing sponsorship at a time when coach leaders are deeply engaged and focused on broadening their reach following our annual convention. The number of independent active earning OPTAVIA coaches exceeded 61,000 at the end of the third quarter. with growth of 44.9% from the same period last year and up 3% sequentially. Both coaches and the company had to adjust to the new scale of the business, and that's caused some to-be-expected bottlenecks that were manifest in product delivery delays in our supply chain in the second quarter and early into the third quarter, which impacted coaches and client experience. Consequently, The sequential growth rate in active earning coaches decelerated as existing coaches spent more time supporting the record number of new clients who have entered the Optivia ecosystem rather than onboarding as many new coaches. As planned, we brought new fulfillment capacity fully online at the beginning of August 2021, and this had a significant positive impact on both coach and client experience in the back half of the quarter that is expected to continue going forward. Promotional activity directed at client acquisition during the third quarter included the Essential Start promotion we ran in September. Last year, this program ran in the April-May timeframe and was an important catalyst to the sharp acceleration we experienced starting in the summer of 2020. As this year's event was later in the quarter, the initial revenue benefit is expected to occur more in the fourth quarter, while some of the costs negatively affected margins in the third quarter. The key takeaway from our third quarter client acquisition results is that it will put us in a very strong position as we move into the final quarter of the year and moving to next year. Our coach-based model is driven by activation of new clients who then go on to be new coaches. New client numbers are up about 50% year over year in the month of September due to the essential start promotion and the continued strong demand for our coach-supported health and wellness plan. As a result of new client acquisition, Productivity hit a record high for the company, with revenue per active earning coach reaching $6,773. This is up 7% from a year ago and up 1.7% from Q2, the prior high. Coaches are continuing to leverage our infrastructure, advanced digital tools, and field-led training to amplify their engagement across social media as well as other technology platforms, enabling them to support a greater number of clients. Our strategic investments in expanding supply chain and fulfillment capacity have proven invaluable in supporting our growth since 2017 when we decided to double down on the clinically proven coaching model through OPTAVIA. Thanks to outstanding execution by our team, we are now able to support a business with $2 billion in top-line revenue in both manufacturing and fulfillment capacity. This was accomplished three to six months in advance of the respective target dates. Given our expected growth over the next several years, we are continuing to allocate capital and investments to this critical infrastructure and have already started work on an additional distribution center in Fort Worth, Texas, in partnership with a leading third-party logistics company. This comes on the heels of the new warehouse and distribution center in Maryland that came online in Q2 and to which we continued to add capacity through Q3. Additionally, in October, we held an event with top coach leaders at Sundance, Utah, to reinforce alignment and provide planning and alignment sessions around major initiatives for 2022. During the meeting, we aligned our plans for the fourth quarter, which supported their field-led training events over the final months of 2021 in preparation for Q1 of next year. Consistent with last year, we will execute our holiday dash program, which will begin in December and carry over into the first week of January. This promotion rewards coaches who attract new clients during the program period. We continue investing in our digital lab in Utah to pioneer exciting growth and productivity tools for existing coaches, as well as developing additional pathways for attracting new clients and encouraging and engaging new coaches. Deployment of the two proprietary apps we've been developing is advancing, and the early metrics are encouraging. The Octavia app targets clients and features healthy recipes, self-service options related to the Octavia Premier Orders, and other key information to stay engaged. It's broadly available in the U.S., while select users have access now in our Asia markets, where it is on track to go live within the next few weeks. Through mid-October, there have been over 217,000 unique downloads, and daily average usage has averaged approximately 50,000 over the past month. Our Connect app is designed for Optivea coaches and provides a powerful tool to help them efficiently manage and grow their business with instant access to key data and insights. Connect recently went live with approximately 2,000 business leaders and business coaches and will be rolled out across the broader coach population of 61,000 plus Optivea coaches during the fourth quarter. For some time now, many people have been looking at their health more holistically with a specific focus on developing healthy habits in every area of their life. Our latest survey findings revealed the large majority of US adults have guidance from someone who has had similar experiences in helping them, not only to reach their goals, but also to develop healthy habits. We found that 66% of adults say having support helped them throughout their health and wellness journey, and that more than four in five, or 81%, of US adults believed that they would be more successful in creating healthy habits if they had support from someone who had been in their shoes. This is true of our clients who are supported by independent OPTAVIA coaches, the majority of whom have undergone their own transformation on program and therefore understand what clients are going through. Coach support continues to be a critical component of the OPTAVIA program and a key differentiator of our unique model. Our competitive position has never been stronger. OPTAVIA's unique model and holistic approach, incorporating coach and community to support, helps people achieve their individual goals around health and wellness. About 91.9% of our revenue is subscription-based, and 100% of our orders are DTC, shipped directly to consumers. We now support over 1 million clients on an annual basis. The number of people who we consider as part of our client community is increasing at a rapid rate. Investments in technology and infrastructure have made us more efficient and created a more powerful, scalable platform. The strong, consistent growth in revenue and profits that we have delivered in the third quarter, as well as over the past several years, is a testament to the strength of our business and continues to reinforce our confidence in the future. In 2019, I shared the goal with our investment community of MetaFast generating a billion dollars in revenue by the end of 2021. In Q3, we are pleased to announce we surpassed that full-year revenue goal three months ahead of the original projection, allowing Optivia to join an elite group of brands as it exceeded $1 billion in annual revenue. According to a study by the Boston Consulting Group, there are around $290 billion FMCG brands with U.S. sales, and only around 20 of those brands were introduced after the year 2000. Less than five years ago, we partnered with our coach community to introduce the lifestyle brand Optivia. Today, Optivia joins that select group of billion-dollar brands. It's a rare achievement that only a handful of brands can claim and further demonstrates the power of our unique coach model. However, our proudest achievement lies in the human aspect. It's the countless personal stories we hear from our Octavia community each day and the 2 million lives we have impacted today that underscores our mission of lifelong transformation, one healthy habit at a time. We remain confident in our ability to continue to drive long-term sustainable growth. Demand for health and wellness products and services is strong, with a particularly high addressable market for approaches that favor healthy habit building over dieting or other weight loss approaches. This achievement is a reflection of the strength of our independent coaches and the team that supports our community on a daily basis. I'm extremely proud of what we've accomplished, and I look forward to achieving many more growth milestones ahead. Lastly, I'll close my remarks with an update on our initiatives around corporate social responsibility, which is a key priority for the entire Metaphosa organization and closely aligned with our overall mission. Last month, we hosted our third annual Healthy Habits for All, a week dedicated to helping underserved communities around the globe adopt healthy habits through improved education and expanded access resources. The event kicked off near our headquarters in Baltimore, Maryland, where employees assembled back to school bags for after school students at the Living Classroom Foundation. We closed the day by distributing those bags to the community and donated Chromebooks to the kids, providing critical access to technology that will allow them to adapt to changing environments throughout the school year. We concluded the week with a virtual cooking class for our OPTAVIA community benefiting our nonprofit partner, No Kid Hungry. The class was led by celebrity chef Fabio Viviani and our own OPTAVIA co-founder and independent OPTAVIA coach, Dr. Wayne Anderson. Together they taught attendees how to create two restaurant-inspired lean and green dishes. We're proud of the impact we've made through Healthy Habits for All thus far, but we're just getting started. Our community has a clear passion for making a difference and has demonstrated an impressive commitment to transforming communities around the world. Let me now turn the call over to Jim Maloney, who will walk you through the financial results.