MEDIFAST INC

Greetings and welcome to the MetaFest third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephen Senker, Vice President of Investor Relations. Thank you, sir. You may begin.

Good afternoon, and welcome to Medifast's third quarter 2024 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 30, 2024, that went out this afternoon at approximately 4.05 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 also be available on the company's website. Before we begin, we would like to remind everyone that today's 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 statements 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.

Thanks, Steve, and thanks to everyone for joining us on the call today. With me is Jim Maloney, Medifast's CFO. We'll give some color on our third quarter results and provide an update on the progress we're making on our business transformation. The weight loss segment of the health and wellness industry continues to experience profound change. Widespread consumer adoption of GLP-1 medications has fundamentally shifted the way people think about weight management and health. The growth is in many ways staggering given that it's not quite 12 months since the FDA approved the second generation of GLP-1 medications for use in weight loss regiments. A recent Kaiser Family Foundation poll showed that one in five US overweight and obese adults have used one of these medications. Like many of our peer set, we've naturally seen significant impact on our business fundamentals. Adjusting to market realities has not been easy. However, we continue to believe that there is a significant opportunity to return the company to growth. Our goal is to build the health and wellness company of the future, one that is designed to grow in a GLP-1 world. With that in mind, we've been steadily executing on our strategic transformation plan, focusing on our core mission while broadening reach and improving solutions to address the changing nature of the marketplace. We continue to make progress in several key areas. and are working with OPTAVIA coaches and customers as we shift to reflect this new environment. To establish a thriving health and wellness business that can grow in today's market, we've developed distinct coach-supported program offerings tailored to meet the unique needs of three specific customer segments on their health and wellness journeys. The first offer is targeted at individuals using GLP-1 medications as a core element of their weight loss program. The second offer is for people looking to maintain weight loss and improve health when they come off GLP-1 medications for whatever reason. Those could include costs, side effects, or any other cause. And the third offer is for people who have never used medications and want to use coach-supported, habit-based programs as the core of their weight loss journey. I want to take a look at each of those target markets separately. starting with those who want to use GLP-1 medications at the core of their weight loss efforts. We've expanded training for our independent Optivea coaches to better equip them to help customers develop a healthy lifestyle while using GLP-1 medications. Currently, over 95% of coach leaders have completed this specialized training, and according to our latest survey, approximately 40% of active coaches are now supporting at least one client on a GLP-1 medication. Research commissioned by Medifast suggests the GLP-1 support market could grow to $50 billion or more by 2030, making this audience a core focus for our business. GLP-1 medications have been shown to be highly effective in aiding healthy and lasting weight loss when used in conjunction with healthy habits like diet and exercise. As such, We believe there is strong compatibility with our experience of helping people through our coach-guided Habits of Health transformation system. Around 12% of our customers have used GLP-1 medications over the last 12 months, compared with around 4% at the beginning of the year. We expect this penetration to increase over the coming months as coaches continue to successfully help these individuals with their weight loss goals. and in making a healthy lifestyle second nature. The next target segment reflects growth in the number of people transitioning off medications for any reason. We're very encouraged by the potential of OPTAVIA to help people maintain weight loss and improve health when they stop using medications. External research shows that individuals who stop medication usage regain two-thirds of their lost weight and fail to maintain associated health improvements. if they do not adopt modified healthy lifestyle during or after using GLP-1 medications. This is particularly important because of early indications that GLP-1 medications are not being used for the long term. Recent KFF analysis showed that about one-third of users quit taking the medication after six months, and by one year, this number can rise to half or more. That same poll showed that one in eight U.S. adults have taken GLP-1 medications at some point, with only half saying that they are currently on the medication. By 2030, our internal estimates suggest that as many as 50 million or more people could have started and then stopped GLP-1 usage. A huge potential market. We are actively exploring this area in more depth. and expect to launch a program later this year that meets this group's needs. Lastly, we continue to place focus on finding new customers and reactivating past customers who have no interest in GLP-1s, but who are motivated to lose weight by focusing on wellness, healthy habits, and a healthy lifestyle. Central to our efforts in this area is an initiative to improve overall customer experience. whether new to our program or reactivating after an absence. Improvements include better tracking dashboards and advanced data capabilities, enabling customers and coaches to stay aligned on the progress and on their goals and allowing greater personalization. We saw an increase in engagement for those on our newly enhanced website in recent months, with an average session time of up double digits and unique visitors and sessions also increasing. Regardless of need state segment, our integrated, coach-supported, lifestyle-based approach accurately reflects the behaviors and priorities of the consumer in a positive way. We differentiate ourselves by offering holistic solutions that include scientifically developed nutrition products and individualized coach and community support. as well as access to weight loss medications through LifeMD where clinically appropriate. With new products in development, as well as enhanced technology to help coaches provide a highly personalized experience to each of their customers, our offer has never been more compelling. Personal coaching, a support community, tailored plans, and personalized solutions have always been at the heart of our offer. and they remain just as relevant in a GLP-1 world. We've spent 40 plus years walking alongside people and offering integrated solutions to those learning to live healthy lifestyles. Now, with the evolving dynamic of the weight loss market, we're positioning Medifast to address a broader spectrum of customer needs, working alongside our independent OPTAVIA coaches and in collaboration with LifeMD's physicians. As part of that strategy, we need to ensure that we have the right products, pricing strategies, and positioning in place to drive engagement and retention. We expect to launch a new program at the beginning of 2025 featuring a series of entirely new products under the new Optivia Ascend brand. These products and associated meal plans are specifically designed for those on GLP-1 medications. We also plan to simultaneously launch a supplement pack with vitamins and minerals to help support the program and to provide a complete and balanced diet. This program will be competitively priced to ensure we capture consumers who are already spending money on the medications themselves. Opti-VSN products are high in protein and fiber to help retain lean muscle mass and promote digestive health and also include calcium to support bone health. These products will be paired with the support of a coach and community and access to GLP-1 medications through LifeMD. Optivia Ascend also supports a new program designed to facilitate the key transition and weight maintenance phase of customers' weight loss journey, empowering lifestyle changes and providing essential nutrients. We know that once customers lose the weight, Optivia coaches can teach them how to keep it off. OPTAVIA Send has a different nutrition profile, and the plan was developed in response to coach feedback requesting a simpler, more tailored approach for clients transitioning from active weight loss to weight maintenance. We're also testing starter kits for new customers who want to try OPTAVIA before making a longer-term commitment. This program allows us to show customers the effectiveness of our products and familiarize them with our coach community at an attractive initial price point. By offering additional ways to drive affinity with our program, we believe we can bring in more customers, which in turn will drive higher numbers of active coaches. Development of these products took about half the time of previous launches. And as we move through 2025 and beyond, will continue to consider further product line extensions and modular add-ons that will extend beyond weight loss and support those using medications. So, we have a differentiated offer that is designed specifically for the key audience need states, and we have products and programs in place to drive sampling, engagement, and retention, as well as to support the transition to long-term weight maintenance. We're about to embark on a clinical study to assess the health outcomes associated with the integration of the Optivia nutrition and lifestyle programs alongside medications. We believe this study will provide valuable insights into the performance of our products and our support for customers on their health journey. The results will add to our existing scientific evidence as we continue to offer differentiated holistic lifestyle programs that serve all clients from weight loss to weight maintenance. Through all of this, we must use marketing and partnerships to maintain competitive white space, drive brand awareness, and power client acquisition. Our company-led marketing campaigns reflect an approach that targets key demographics across the three core groups I mentioned earlier. This is a competitive market, and it's not easy breaking through the noise in a crowded environment. We have learned some valuable lessons and have been fine tuning our strategy with a focus on channels that yield the highest return on investment. We're optimizing spending accordingly and have scaled back in less effective areas. We now expect total marketing spend for 2024 to range between 20 million and 25 million. This reflects a disciplined approach that prioritizes efficiency and value. Our collaboration with LifeMD also continues to show promise, as we begin piloting joint marketing campaigns highlighting the complementary solutions that both companies offer. These efforts should help us reach new customers and broaden our customer acquisition strategy. The full impact of all these initiatives will take time to materialize, but with resolution season coming up, we see real opportunity. With our newly refreshed website up and running, as well as the availability of our new products and enhanced interface, we are well positioned to begin to see improved performance in 2025 and beyond. As we continue to develop and refine our solutions, we feel cautiously optimistic about our ability to drive further adoption and engagement. Our strong balance sheet gives us the financial flexibility needed to invest in these key growth initiatives for the business. We're managing our capital prudently, focusing on areas that we believe will deliver long-term value for our stakeholders. We have also identified additional cost savings opportunities as part of our ongoing Fuel for the Future initiative, and we believe that these will further strengthen our financial position as we execute our transformation. The weight loss market has been revolutionized, and Medifast is committed to moving with it to meet changing needs. Our focus on providing integrated solutions that combine lifestyle modification, clinical guidance, and community support puts us in a strong position, and I'm confident in our team's ability to execute on our strategy to position the company for growth in the quarters and the years ahead. Now, I'll turn it over to Jim to review the quarterly financial details.