MEDIFAST INC

Good day and welcome to the Medifast third quarter 2022 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 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 MediFast's third quarter 2022 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 quarter ended September 30th, 2022. It went out this afternoon at approximately 4 or 5 p.m. Eastern Time. If you have not received the release, 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 METAFAST's Chairman and Chief Executive Officer, Dan Chard.

Thank you, Reid, and good afternoon, everyone. Thank you for taking time to be with us today. On the call with me is Jim Maloney, our Chief Financial Officer. I'll start with an overview of the third quarter and continued evolution of our business, then Jim will run through our financial results in more detail. Third quarter has been one of calibration and adjustment. We are pleased to see a faster than expected recovery in customer retention, which is now back to historical norms following the disruption in Q2 due to consumer spending pressure from higher inflation and interest rates. Customer satisfaction numbers remain at historical highs as our operating infrastructure continue to enable us to deliver a high-quality customer experience that drives retention and brand ambassadorship. Customer experience is one of the key differentiators that allows us to maintain our leadership position, which was recently underscored when Euromonitor, an independent market research firm named Optivia, hit the top weight loss program in the U.S. by revenue for last year. Revenue of $390 million in the third quarter was down less than 6% versus the prior year period, representing an improvement on the outlook we provided earlier in the year of a mid-teen double-digit decline. The number of Octavia coaches increased 8.5% year-over-year to 66,200, while revenue per active earning coach declined 12.9% to $5,897. First margin of 72.5% was down year over year, but improved 150 basis points sequentially. Additionally, we proactively manage our SG&A expenses, taking meaningful steps to bring costs in line with how our business is operating. And we delivered 110 basis point reduction on an adjusted basis versus last year, despite lower revenue. We achieved earnings per share of $3.27, a decrease of 8.1% compared to the prior year. and earnings per share of $3.32 on an adjusted basis compared to $3.56 in the prior year period. As we move forward, we will continue to execute a disciplined capital allocation strategy and prioritize investments that will drive meaningful growth. As we look back over the last few months, there are several important learnings that will help us inform the way we plan and manage our business going forward in this new environment. The programming we implemented in early 2022 proved successful in attracting new customers, confirming the continued demand for the OPTAVIA offer. The program attracted the largest new customer cohort in company history, but repeat rates were negatively impacted in the most price sensitive customers across all customer cohorts. Repeat purchase rates among our remaining customer base across all cohorts returned to their historical ranges in the third quarter, but there is a lingering overall impact on coach productivity as measured by new customer acquisition per coach. With this in mind, we made several changes to our programming and operations to help put the business back on a growth track and improve profitability as we finish 2022 and begin 2023. First, using the learning from the successful new coach accelerator program that we put in place during Q3, to accelerate building our base of active earning coaches and acquiring new customers, we expanded the program to include all coaches and extended the program period through the end of the year. This means that all of our coaches have an incremental financial incentive to drive customer acquisition. Second, in partnership with our coach leaders, we identified a set of programming adjustments that reflect learnings from early 2022 to help drive customer acquisition in the new business environment through 2023 and beyond. These programming chains will be implemented in the first quarter of 2023 and will focus on accelerating new customer acquisition. Third, we will implement a price increase across the entire product assortment that will be effective in November. The increase is tied to a set of margin assurance and productivity initiatives that will have a positive impact on the P&L in Q4 and provide further profitability support in 2023. The price increase will be an average of 4.5% on our consumable products. Concurrent with this price increase, we will increase shipping prices as well as adjust purchasing thresholds within our premier loyalty program to further support productivity. Fourth, we have made minor changes to optimize the compensation plan in our GNA operating structure that will improve results and better align with our long-term strategy. And finally, leveraging our investment in technology and digital capabilities remains a key area of focus to drive deeper engagement and seamless connectivity across the OPTAVIA community of coaches and customers. We continue to add capabilities and work closely with coaches to integrate these powerful tools to serve existing customers more efficiently and effectively, as well as grow their businesses. Consumer focus and awareness around health and wellness is not dissipated. In a recent MediFast survey, while the majority of U.S. adults said that they have cut their spending in the last six months, 70% of U.S. adults say they don't plan on letting their health and well-being falter and plan on implementing better lifestyle changes in the coming year. Our unique positioning of a personalized transformation experience remains a critical point of differentiation in this important sector. and our programs and initiatives will help us drive further growth and energy in our business as we continue to scale. Clearly, there are near-term challenges for consumer-facing businesses as they adjust to the changing environment. At Medifast, we remain confident in our ability to navigate this shift and in the strength of our long-term growth strategy. Our coaches and customers remain deeply engaged and satisfaction levels continue to be near all-time highs. We have a dominant position in the $7 billion weight loss industry with a model that is clearly differentiated and a plan that is clinically proven and consistently delivers positive outcomes for coaches and customers. Over the years, the OPTAVIA community has grown to millions of individuals working in partnership with OPTAVIA coaches who provide customized support and teach customers healthy habits that can lead to lifelong transformation. We continue to be well positioned for the long-term growth and remain committed to our target of 15% average annual revenue growth and 15% operating margin. Our investments in technology and infrastructure provide an efficient pathway and significant capacity for growth as we continue to expand our international footprint as well as move into the broader $230 billion health and wellness market in the future. MetaFest has a bold mission to transform lives one healthy habit at a time. We are achieving that in the field with coaches and customers who are achieving change that they previously thought impossible. We are also helping drive change in the classroom with the Healthy Habits for All curriculum that is helping school children make healthy choices regardless of socioeconomic background. And we are doing it through our partnership with No Kid Hungry which has provided up to 10 million nutritious meals to children facing hunger. Our mission motivates us to continue the work we're doing every day from profit generating activities to corporate social responsibility initiatives. It's important work that drives us to be better every day, to overcome obstacles and to work as a team to drive better outcomes for everybody, for clients, to coaches, to employees, to investors. With that, let me now turn the call over to Jim Maloney who will walk you through the financial results.