MEDIFAST INC

Good day and welcome to the Medifast Fiscal Fourth Quarter and Full Year 2021 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 a touch-tone 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 Reed Anderson with ICR. Please go ahead.

Good afternoon, and welcome to METAfast's fourth quarter 2021 earnings conference call. On the call with me today are Dan Jard, 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 December 31st, 2021, 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 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 upon 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. MetaFAST 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's Chairman and Chief Executive Officer, Dan Chard.

Thank you, Reed, 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 fourth quarter, then Jim will run through our financial results in more detail. Following our prepared remarks, we will open up the call to your questions. 2021 was another record year for MetaFast as we continue to demonstrate the power of our coach-centric model to positively impact millions of Octavia clients' lives and drive strong financial performance. In the fourth quarter, revenue increased 42.6% over the prior year period to $377.8 million, reflecting strong execution in all areas of the business. Earnings per diluted share were $2.91, a 23.3% increase over the prior year period. The number of active earning OPTAVIA coaches grew 35.3% to 59,800 on a year-over-year basis, and productivity per active earning OPTAVIA coach rose 6.6% to $6,321. Jim will dive deeper into our performance in just a few minutes, but I wanted to take the opportunity to dig into why the board, the leadership team, and I are so aligned in our belief that Medifast has an unparalleled opportunity ahead of it right now as we move into the next phase of our remarkable growth journey. Five years ago, there were undoubtedly those who were skeptical about the ability of Medifast to deliver on our long-term growth goals. They saw us as a manufacturer and omnichannel distributor of diet products and made some assumptions around what we could achieve. The reality is that time and time again, we have outperformed expectations. Our business has now more than doubled twice since we implemented the strategy to put the coach-centric vision at the heart of the business. That coach-focused approach is clinically proven to be effective and is being propelled by an innovative approach that fuses the best aspects of direct selling and direct-to-consumer offerings. This has enabled us to create a truly differentiated and unique model that puts the Optivea coach at the center of helping clients on their health and wellness transformation journeys with personalized support. With this engine powering our momentum, we have moved from $275 million in revenue prior to the launch of Optivea and the new business model to today announcing revenues in excess of $1.5 billion. This will seem like extraordinary growth to casual onlookers, and certainly it's a testament to our strategy and the team behind it. However, for those of us inside the business, it really is just the tip of the iceberg in terms of what we are capable of achieving. The success of our transformation to a coach-centric model reached an important milestone this past year as we became the market leader by dollar share in the weight management category in the United States, supplanting some longstanding competitors in this space who just a few years ago for more than four times our size in terms of total revenue. However, we're not content to rest on our laurels. When we began our business transformation five years ago, we set out on our mission to offer the world lifelong transformation, one healthy habit at a time. And we defined, at that point, our US addressable market as the $7 billion of weight loss through commercial meal plans and replacements. Having achieved significant success Our differentiated model gives us unique permission to play in a much wider space than we do today. As such, it's clear that we can now expand our penetration into the broader $230 billion US market for health and wellness far more deeply than we do today. Technology will be at the core of our expanded growth journey. We will leverage technology, digital apps, and data to improve the efficiency of our coach and client community and will add to our strong platform of clinically proven products and the Habits of Health system. This will make our offer more attractive to increasing numbers of coaches and clients and unlock opportunities for new service and subscription offers. This will in turn increase coach efficiency in attracting new clients, enhancing lifetime value of OPTAVIA clients, and continue to offer improvements in field-led training of new OPTAVIA coaches. Enhancing our technological capabilities has been a key area of investment over the past several years and will accelerate as we move forward. We are seeing solid progress in our proprietary Optivea apps, which have cumulatively been downloaded over 300,000 times by clients and coaches since launching late last year. The Optivea apps drive deeper and more consistent engagement and are central to our long-term strategy of seamlessly connecting Optivea coaches and clients within the OPTAVIA community. The OPTAVIA app, which is designed to support clients on their health transformation journey, added over 91,000 new users in the fourth quarter. Each user of the app is now connected in a new way to their coach and provides the capability to communicate even more closely with their coach as well as manage their subscription order for OPTAVIA products. It also gives clients access to over 125 healthy lean and green recipes that support the habit of healthy eating and makes Optivia more central and front of mind in their pursuit of lifelong transformation. Our core focus will continue to be on growing the number of clients seeking greater health and wellness, targeting those who have failed on diets and want a holistic approach to achieving greater health and wellness in their lives. However, our mission cannot and will not stop there, and I'm excited by some of the initiatives that we are considering to help further deepen and widen our engagement with consumers. Our client community is now comprised of over 1 million individuals annually who rely on OPTAVIA coaches throughout their health and wellness journeys. Most of these clients are here in the United States. As we continue to expand into the broader health and wellness segment in this market, we have continued to prioritize a global approach based on the learnings we've had thus far in select international markets. As we look at consumer trends and evolving behaviors in the health and wellness space, Our surveys reveal several interesting insights to support the effectiveness of our OPTAVIA Coach Model. We know, for example, that in late 2020, more than half of US adults adopted new positive health routines amid the pandemic, 96% of whom plan to continue embracing healthy habits throughout the year. Six months later, we found that 84% of Americans were actively working towards achieving their health goals. The number one reason US adults wanted to prioritize their health and wellness was to feel better both physically and mentally. Typically, people have set resolutions and vow to make changes to their health as they enter a new year. However, our most recent survey suggests that new year resolutions could be a thing of the past. The number of people setting new year resolutions has decreased annually according to our surveys, and only 10% of U.S. adults stuck with their resolutions. The primary reason respondents failed was loss of motivation, followed by not having a plan or the right support. Less than half of US adults said they were planning on setting a 2022 New Year's resolution, with many wanting to take a different approach and incorporate small changes into their daily lives throughout the year. These findings suggest that consumers are prioritizing health and well-being in all areas of their lives and searching for better ways to accomplish their goals year-round. Our unique OPTAVIA model has proven effective in helping people achieve their individual health and wellness goals with the right support, and we believe that it can be the solution to those looking for lasting change. While parts of our business model may have been initially founded on the direct selling approach, we have moved substantially away from the traditional model in recent years to develop a differentiated system that is more reflective of the way consumer behaviors and demands are shifting. A comparison of our results in recent years substantially underscores this point. Over the past three years, our annual sales growth rates were 42% in 2019, 31% in 2020, and 63% in 2021. On the other hand, major public direct sellers had average annual sales growth rates of negative 7%, positive 5%, and positive 2% in the same periods, respectively. The largest annual sales growth rate recorded by any major public direct seller during the same time frame was less than 14%. Moreover, in 2020, the first year of the pandemic, our sales growth was very strong at 31%, but saw some deceleration from the prior year. Traditional direct sellers, on the other hand, saw material acceleration in 2020 as people looked not for health transformation, but for alternative income-generating options tied to the pandemic uncertainties. At Optivea, we're building a deeply connected community optimized by a powerful network effect rather than a fluctuating direct sales model. We believe that we have a compelling value proposition and that our platform is highly scalable, fortified by our significant investment in technology and infrastructure. As of the end of 2021, over 90% of our revenue is subscription-based and 100% of our orders are direct-to-consumer, which drives strong, consistent growth in revenue and profits. Operationally, we're in a strong position. We believe that our accelerated investment in the fourth quarter, including our partnership with a 3PL company on a new distribution center in Fort Worth, Texas, will help us further increase our supply chain capacity to support over $2.5 billion in revenue by the end of 2022. This represents $500 million in manufacturing and fulfillment capacity beyond where we finished in 2021. We continue to build out our technology and innovation lab in Utah and invest in other technology tools, including our proprietary apps, to drive coach productivity even higher. Since we first shifted to the coach-centric model in 2016, revenue per active earning coach is up more than 50%, and we believe that we're just getting started. We have talked at length about our commitment to maintain mid-teens revenue growth and 15% operating margin annually. Revenue will be fueled by the large addressable health and wellness market in the United States and our continued expansion into the Asia-Pacific markets and other large markets throughout the world, while margins will be driven by strong underlying demand from consumers for our unique coach-based solution. Over the near term, we expect margins to benefit from increasing scale and operational efficiencies as we leverage our recent investments though there will be short-term margin pressure this year from the continued investment in technology and supply chain infrastructure. While mid-teens revenue growth and 15% operating margin remain the focus of our sustainable long-term financial goals, we believe there is significant upside in growth potential above and beyond these objectives as we invest in the business, leverage our assets, and develop new capabilities to drive growth and operational efficiencies. We have a highly experienced management team a proven strategy, and a differentiated market approach. We will continue to pull all the levers available to us to drive consistent growth in our metrics, and as we look to the future, we believe that there is significant upside as we focus on delivering our growth ambitions. As we grow, we remain committed to building on our corporate values that include giving back to our communities. Over the past two years, urgent social and environmental challenges required companies to reimagine their corporate giving and social responsibility strategies and rethink the impact they leave on future generations. Medifast's commitment to lifelong transformation starts with the work that our independent OPTAVIA coaches do and includes actively supporting the communities where they live and work. OPTAVIA has impacted more than 2 million lives, but we believe we have the power to do more. Our corporate social responsibility initiative Healthy Habits for All advances our mission by providing underserved communities with education and access to healthy habits. Through partnership with nonprofits, we can help break intergenerational chains of poor health to give children and families in at-risk communities the ability to transform their health and wellness destinies. This vision is reflected in the partnership between our corporate team and our coaches in supporting the deserving communities across the globe Together, we hit an important milestone this year, delivering up to 10 million nutritious meals to kids in need to our partnership with the nonprofit No Kid Hungry. I'll close my remarks with an update on what's to come for the program. In 2022, we will be focused on the education pillar of this initiative. Our Healthy Habits for All curriculum go live and is designed to teach students about healthy habits I believe children will be better prepared to make healthy choices a reality with this knowledge and greater access to critical resources despite socioeconomic backgrounds. This will be an important and exciting year for MediFest as we look to build on our leadership position in the weight management market and broaden our approach to focus on new segments in the broader health and wellness market. We've made meaningful progress in advancing our work in operational infrastructure development and technological advancements over the past year. We'll look to leverage these investments through and during 2022 to drive further growth. We have a strong and experienced leadership team and a team of employees who continue to show passion and commitment to our important mission. Much to be optimistic about, and I look forward to delivering on our vision in the months ahead. Let me now turn the call over to Jim Maloney, who will walk you through the financial results.