- Earnings call transcript Q3 2022

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Operator

Good day, and welcome to the Medifast Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Reed Anderson with ICR. Please go ahead.

Reed Anderson

Good afternoon, and welcome to Medifast's Third Quarter 2022 Earnings Conference Call.

me and Dan Officer. Jim with Chief Chairman call Officer; Executive Maloney, the today Chard, are and On Chief Financial now, XX, access the have X:XX p.m. this everyone earnings approximately By for release afternoon to at quarter and XXXX, the September went out ended should Eastern Time.

website. on a on at If call www.medifastinc.com. not available is release, replay portion available Relations being it the have Investor company's of and will This the be you is webcast, received the Medifast's website

we like statements, the should management statements Before would anticipate prepared remarks questions. may generally forward-looking and statements statements. that them. statements. These we upon remind everyone expect, your identify begin, materially future to additional words to Actual do contain results and in expressions believe, other could performance, The those forward-looking forward-looking forward-looking response make be undue any not projected in differ placed guarantee similar reliance from not and therefore,

the only Dan over forward-looking the any that of All in the obligation may I to call. with Chairman would be turn assumes Chief today's forward-looking and that, of statements this to like update projections And made Medifast's herein Officer, speak call. Medifast or no release to as Executive date contained of Chard.

Daniel Chard

and be Reed, afternoon, with you, good for to you Thank us everyone. taking time Thank today.

of start On financial the evolution call Then run an business. overview with Chief I'll in the with Maloney, of quarter results Officer. Jim detail. through me continued our is Jim Financial more third and our our will

been and of calibration has quarter one Third adjustment.

high-quality QX numbers historical norms interest the higher mid-teen sequentially. that less when named recently leadership provided earlier to is revenue see following research of of while of recovery down to in independent was XX,XXX, rates. is spending Euromonitor, improved to pressure and in X.X% as that coach experience The now market quarter infrastructure outlook historical from Gross to highs retention to retention, prior of for improvement due XX.X% of per third which year key but Customer to we customer consumer faster-than-expected which earning pleased ambassadorship. are X% was brand Revenue was satisfaction experience the underscored the $X,XXX. our increased the position, active us us year representing the maintain customer program drives the versus OPTAVIA an at a $XXX in OPTAVIA firm, decline. to a U.S. Coaches than weight down our We one and Customer million top the deliver last as remain a by differentiators period, number the year. operating disruption double-digit XX.X% year-over-year on in inflation basis continue enable points back revenue allows in to margin XXX declined year-over-year an loss

adjusted the proactively on prior to versus despite point achieved $X.XX, to and per We the operating, of $X.XX year of line of revenue. costs adjusted per we compared to an with expenses, basis period. lower decrease our year basis on basis earnings how is in earnings a reduction XXX in Additionally, prior an share share X.X% $X.XX compared manage bring business we delivered last SG&A taking and meaningful year our steps

As we will that move forward, prioritize meaningful execute strategy drive we capital investments will and continue a disciplined to allocation growth.

is learnings history, we the early in all among cohorts. by third Repeat The overall but on historical rates but cohort in over returned most ranges the business programming in in in customer this The negatively there XXXX cohorts the With business the several and price-sensitive profitability customers, in coach. the across were the are programming lingering going inform to help quarter, offer. several last important in will way changes we for help measured confirming their productivity the new the manage months, rates environment. attracted mind, and remaining a across customer new customers put largest as company our as finish proved continued base repeat customer to a our attracting to impacted successful XXXX back this for OPTAVIA that As operations demand made few back new new track program forward all implemented growth purchase we we our impact and coach XXXX. plan and acquisition be us we in customer look there improve on

in period coaches using and of include put place coach to that through program that This to acquisition. customers, coaches end and the accelerator acquiring have means during customer incremental the the accelerate program learning new our coaches to financial we new successful QX program year. we building base the all First, from earning of active incentive the all an extended drive our of the expanded

a XXXX acquisition will reflect of will early adjustments accelerating on new through set from and Second, environment that beyond. help change and the coach business programming our identified we implemented This focus first in drive the XXXX to in programming of learnings new partnership XXXX customer with be customer acquisition. in leaders, quarter

support a seamless drive And in positive consumable the the productivity implement The support tied be in and a and to focus key provide margin will we finally, engagement our thresholds optimize with of long-term community further initiatives this and will we remains and G&A set strategy. across will results P&L to and across area Third, leveraging impact and coaches plan investment that assortment compensation purchasing operating assurance of structure XXXX. that have customers. Fourth, increase, with changes align of product the within improve that increase the increase will minor our program further technology made shipping and on increase increase to price will effective price we a average well loyalty profitability an in to have The our adjust price entire November. products. a be as better productivity. of in QX Concurrent X.X% digital deeper connectivity prices will capabilities our OPTAVIA as premier our is on

to with continue well-being and adults on in survey, months, tools their plan awareness have wellness cut adults while of coaches say their last existing and the capabilities customers plan falter of dissipated. majority they health and focus their said and closely serve more add integrate Medifast X these around businesses. efficiently implementing lifestyle U.S. U.S. in year. grow health as to the on Consumer better they spending don't coming not the changes letting has and work well In powerful and effectively as to recent We a XX%

navigate experience in positioning are in there we transformation point challenges to our Medifast, of further ability Our differentiation consumer-facing in to remain and of business a At shift we Clearly, scale. remains strategy. continue the and a businesses help for and as personalized energy programs sector, near-term environment. will growth strength critical this our in confident adjust and growth as our changing they drive the this of initiatives to us important unique our long-term

engaged, to Our coaches deeply satisfaction all-time near be and customers remain levels continue highs. and

and that a industry $X plan in billion that clinically consistently outcomes dominant customers. proven a delivers model and a with loss position coaches clearly and positive for is have a differentiated weight is We

that has OPTAVIA healthy can support customized the to and years, lead provide habits to individuals community of the who partnership in teach working lifelong millions with customers Coaches, transformation. grown Over OPTAVIA

positioned our be long-term revenue average operating and to target for XX% the continue growth well XX% of remain We annual growth committed and to margin.

international and expand a growth, billion investments our the in transform capacity we health the significant in a technology and for mission efficient market provide as at continue time. wellness lives an Our as well future. infrastructure footprint $XXX has to habit bold healthy move Medifast into pathway and as to one broader

the that achieving who they and coaches are thought with field that previously change in customers, are We impossible. achieving

choices in nutritious of We helping partnership also with classroom all helping school make for doing curriculum which up is are socioeconomic And habits million Hungry, it children drive has hunger. Kid No provided children to to through facing healthy are change the healthy XX background. our the meals regardless with we that

outcomes us continue to activities every we're to work From overcome it's social profit-generating the as day obstacles drive drives doing investors. everybody, corporate for will to me employees, you through walk the be to financial turn every With responsibility Our motivates that call day. to and now for clients mission better initiatives, to that, over important to the Maloney, Jim? who coaches, to results. work work let team us to better a Jim to

James Maloney

XXXX. customers in to a The and from revenue Coach from was the non-GAAP in as the income and of period. to $XX.X basis decrease the period third third supported as profit prior to was of afternoon, non-GAAP third basis SG&A. the the X.X% conditions XXXX by the was of same in Non-GAAP the was in Non-GAAP in quarter quarter related quarter quarter third XX.X% points the XXXX. XXXX you, to margin was Non-GAAP prior $X,XXX, or year income million third XX.X% third versus period. of partially prior for period, to labor quarter. year excludes $XXX.X $XX $XXX.X percentage driving effective million XX.X% of a the to a the third SG&A share. primarily third revenue of of tax in quarter revenue Gross everyone. XXXX Thank for revenue was million $XXX.X period effort. Dan. XXXX. million adjusted or to XXXX $X an of gross the million. to third was as XX,XXX quarter Ukrainian donations in the as year-over-year year's XX.X% XXX to rate primarily quarter decreased $XX.X million a earning per income increase compared compared decreased tax partially was compared revenue donation, higher the million Net million in a of Coaches, research result net XX.X%, from percentage decline lower quarter. of active $XXX.X the points SG&A ended decreased that development due the XXXX due from year rate X.X% Average year's $X.XX economic third as of compared adjusted the quarter taxes million compared $XXX.X was share decrease for in an The adjusted of of quarter adjusted million comparable $X.X quarter The OPTAVIA operations reflecting X.X% $XX.X of a by of of increase decreased expenses point decreased SG&A in XX.X% compared donations per net prior $X.XX Gross by percentage rate to prior versus $XXX.X the compensation to coach. the to driven support decreased expenses XXXX each $XXX.X in ago third operations, or are SG&A to Income OPTAVIA primarily non-GAAP XXX in $X.XX increased to coach for of per profit to lower expense. from diluted profit to was decline tax of in adjusted income made XX.X% made the earning shipping quarter was inflationary XX.X% to quarter of decrease active XX.X% operations X.X% operation credits. XX.X%. million Ukrainian basis increase XXXX. percentage the ingredients, points X.X% decreased adjusted in Income tax offset per from in effective XX.X% decreased $XX.X XX.X% period. driven The year XX.X% as year-over-year diluted non-GAAP to million profit in XXXX income diluted SG&A and million, basis a with the in prior share, third for effective income Good or from third state quarter from Coach to approximately million by OPTAVIA the in and decreased of benefits by offset productivity. XXXX. mainly gross The costs. excludes We XX number third SG&A decreased of a which tax from The quarter the compared XX.X% the year XX Revenue the raw the relief Non-GAAP

of $X.XX compared the on share per of Board increase prior XX.X% Directors of of quarter is cash third payable XXXX, declared or XX, to of $XX.X represents quarterly a Additionally, the record X, the to September which company's stockholders year. as November per X, XXXX. million the dividend This share, September a on

XXXX. and Turning million strong cash, financial equivalents to our cash September XX, no the balance flows. as We in $XX.X of interest-bearing cash debt sheet remains believe and with position

During XXXX, XX% from operating year XX, the period. X $XXX.X an flow million, cash increase of months activities our ended September net the was ago from

As dividends yield XXXX. and the years, X cash our over is have returned stock October of We've XX, the improved excess we XXXX form and increased to X.X% dividend than since stockholders by dividend past more cash flows of the have in as XXX%, buybacks.

increased over the of We including million completed have several buybacks additionally the rate accelerated that in stock $XXX stock years, program the QX repurchase last XXXX. was

growth increased our to of our in are confident for form stock full the dividends now continually return to guidance I buybacks in XXXX. turn We because stockholders the have long-term the and we year strategy. will

retention the norms, returned several a impact residual remained our has challenging rates As is And months. customer there Dan have acquisition. macroeconomic environment discussed, on historical while over to the past new

year the billion be to the $XX.XX. to in $XX.XX billion of range diluted expect $X.XX and non-GAAP We revenue range full to of EPS in $X.XX

a Our tax to assumes guidance XX% XX% rate. effective

coming Finally, be able that navigate we our in business the we'll quarters. coaches, along the to XX,XXX believe new environment with

income our confident long-term XX% Dan. to me and the call turn that, are in let we With back growth targets. So XX% operating

Daniel Chard

lives confident backed Thanks, is relationships. highly Jim. in our by of and to habits health community that power coach system at we and are for an the our In nurturing is closing, change adept coach-based model model It unique transformation better. engaging incredible the of the

is and businesses and and running that of talented a we with We create lives we record day. many that, and of that effective do. we employees years to a we have appropriately years powerful proven is There's the for business over come. invested what of model business strong track is on management strong, The for changing scientifically passion core nimble groups single More team unique, foundation scaling than a have with be can to a have every a proven to build that recent and more that, strong must market to that is means initiatives business environment fine-tune work resilient We for me processes the one circumstances. XXXX our well developing change, always confident initiatives long-term us up growth the of objectives conditions. for deliver to the over constant that to and a whatever turn to and financial we beyond. set succeeding that capable be and is and done, and operations, our our strategy With The feel and operator questions. reality let today call and the reflect of this

Operator

our comes with And from Instructions]. first Davidson. question Xue D.A. [Operator Christina

Christina Xue

Christina D.A. is on from This for Xue Davidson. Linda

hear we firstly, now back track. is really So of rate happy A couple questions. on are retention to that the

were the a sequentially little you down we in do coaches we to fourth you do the third quarter, be mind I the Firstly, about a commenting up down or think for expect up quarter? were quarter-over-quarter, little sequentially.

fourth want quarter. on just the opinions some get So to

Daniel Chard

the let about around Yes, to answer you questioned is Christina, detail related talked ask Jim you about bit -- and this a give I'll color of specific little that that or Dan. coaches. you that the

important where where to kind going. some and we've of to So kind rounding give context back and of understand it's been, for we're some go

As you counter finished XXXX the build-out inflationary finished supply growing initiated know, to we we initiatives, future, increase our allows price XX%. pressures. and the us some a We to strong, X.X% grow which of into chain

year. we last where that's So ended

our strong a in on me, a in was we similar start. saw million had coach bring XXXX. to we bringing XXXX, under executed excuse of was history. is of productivity company, started clients customers company able the X.XX Equally what XXXX we we new the came important And highest highest had and customers new new what history number that -- executed As importantly, in. in We the just were that in to in the we focused in program

of you an was coaches, way Or client to inflationary who another we're we're at were latter do high disrupted. into acquiring, repeat The the those So our QX, that thinking and brought of challenge half rate. retention a disrupted. during rates is that as our was this was able in about period, know, so we

That's after clients we customers XXXX, surveying of the as future inflation around with uncertainty primary is leaving economic more XX% all was active whether the joined bring to or approximately lost our And as regardless was for those recently. we reason of in across So what XXXX they what is cohorts. true well know going it.

also coaches as repeat earlier, and So rapidly a norms. entered brought QX, in just retention of positive the client several rates quarter historical to which the we we returned programs, highlighted rates which supported active for new burning executed clients. is or described that The new thing, you were that cohort of have client I XX,XXX

to What roughly back historical and still to feeling client in from has they're XX% feel remained, still that are QX. where acquisition those, they they of were So QX. we pressure rates is prior -- however, are norms

So been as environment. that has outlook the we think about reflect adjusted new QX, to

think this return I an question plan the to So is for growth. what's the obvious around

outlook we provide So this won't call. on

we about when environment. But the place We to we'll in and our report lot through put earlier fourth make in earnings. learned the that new growth quarter executed ran QX. our QX We environment, and to we we've a on through carry programs will programs we've how plan

implementing acquisition. coaches focused X.X% to offset And pressure. some also our to inflationary of to price adjustments a the keep making we're on increase help compensation We some are plan client optimizing our

It As we've terms we're macro in is for remain to what of it the guiding constant how assumes QX QX, conservative number. relates a headwinds seen.

through build the have We coach case, remains is normally challenge. lower where productivity coaches, that and client large in also we clients would are a not the coaches. In in the younger per year that and as words, which bring reflected is other would younger tenure state a our cohort in a and

coach productivity remember, before is measured revenue what revenue in versus per was per our by over earning coach active it is up If you XX% XXXX.

clients some we'll the the as enjoy start And many to into move about the how the thinking are to And until to pressure year. this last holidays, choose usually we customers eating. off typically hold OPTAVIA prospective people our is X joining as to So choose November, December, involves of months which seasonality see there. clients the lowest program off hold continue the or new year, or of

around made back So it the Jim turn we'll coach be of client acquisition, let and progress year-over-year will I'll the him sequential With the coach to to focus XXXX. but question continue answer growth first acquisition that, ask on work quarter client and -- growth. real the and question in about

James Maloney

Yes.

So Christina, in as mentioned, we the recovered mentioned, Dan good guidance. really is as good macro we QX, And the believe conservative news. provided is Dan assumes retention it's which the guidance has headwinds. And news

However, pressure the retention from pressure of us with customer left carryforward coaching put tenure on that put impact the issues -- QX QX. will that suboptimal

in So productivity QX we in we're and which QX, customer lower-than-anticipated expect beginning seeing in will acquisition, is QX. what the impact

and So a productivity, headwind modest in more we'll we're in to coach be count QX. have lower, expecting

as be we'll is that heading with is help customers. which right the XX-year customer our for company, acquisition news the will January, into and Dan client the for So coaches with good mentioned, mix -- time best

Christina Xue

sense. makes That Okay.

you rate, to correctly. another regard to with round there So think in is price roughly November, the I I starting remember be if going increase of retention mentioned

issue thoughts the clients rate price on are to expect again? be it how your do for what your would react you latest retention an wonder I So on increase,

Daniel Chard

learn Yes. can and at as year pricing thoughtfully our we time and also seen looked actually had took we've through some offer. the year and how last very acquisition versus to We extra optimize what approached we from contemplate

And believe clients. by I'd will what kits some coupled reflects kind increase clients. affordable with X.X% easily more acquisition initiatives being our describe a the as it's we of new modest new make be to absorbed easily So that for

the on ultimately kit base. seen I the once good way success food about most What point and retention that's the rates. and think what the have a to rates or So is the think drives is coach, a pricing repeat important we client the acquisition the this will program, is price the client see likes and likes

acquisition. we X.X% consumer that further -- we -- pricing cause from all increase confident the significant impact So any can the headwind can execute feel a a on creating that of standpoint our without client across consumable we products will

James Maloney

to And when Christina, longer get in income our XX% operating I'll margin. add, of XXXX, we look at objective that, you to have the term

our at significant So XXXX. we which XXXX, margin capabilities initiatives. in have enough continue last the we'll cost start long a organization, that and months our procurement have assurance we amount also but savings opportunities term, the the Dan than increased in increase, of looking seeing price mentioned into more will XX over it have

at G&A also not our have finally, only satisfaction. us value will business optimizing And it will we cost, norms. help these reduce coach support also engineering overall costs adjust We that and growth are initiatives customer to our in increase then compensation looking and new

Christina Xue

Okay.

follow-up customers? So it the all new price to the on a is increase. applied applicable Is customers? to it only Or

Daniel Chard

To all customers.

Christina Xue

Maybe Okay. me. last from question

sorry, So what on -- a to maybe Well, a expect to that? be like sales which and XXXX, able of actually, idea have see you your do clients you react? do -- will in year-over-year growth? we Do you comment have positive possibly Would one. quarter another rough you

Daniel Chard

ahead. Go Yes.

James Maloney

Yes.

for don't XXXX. we're providing guidance -- we yes, not really So

really difficult of growth it's our off we the annual all question. XX% say term so that But gone consistently. long to And we can in basis long-term on answer an haven't objectives is

not So is with down as Dan objective our know investments technology a our company, mentioned we're that's we offering and well offerings. still as and about capacity -- consumers slowing need our because building capabilities, we're out the those that and that needed,

to with. going one spends So even we believe wellness continue health they're the though their adjusting spend, and that is of they're

Daniel Chard

Thank The navigate. shapes your X us been today. last join to to taking for sizes businesses of and years has and questions time all for Great. for you interesting

that This our next for a forward means in macro job shareholder adjust, sustained we to but be to rises and many First, Medifast, of growth, quarter. build, the recession. that's true. the Thank committed just period at Medifast, term, say for delivering come. of held practices of a again driving we upended conditions. and can as the regardless interest COVID to inflation, long to pandemic exactly value to And possibly now always, we to for and the we're consistent I years It's you, in global rate continue and today, plan in speaking interest with not your to do. learn what look you we're

Operator

you. Thank for concludes you today's We presentation. today's This call. conference all thank attending

day. and You may your disconnect now have a lines, wonderful

Medifast (MED) 4 Nov 222022 Q3 Earnings call transcript