Greetings, and welcome to the Medifast Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Zenker, Vice President of Investor Relations. Thank you, sir. You may begin.

Good afternoon, and welcome to Medifast's Third Quarter 2025 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 third quarter ended September 30, 2025, 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 Medifast website at www.medifastinc.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. Now I would like to turn the call over to Medifast's Chairman and Chief Executive Officer, Dan Chard.

Thank you, Steve, and good afternoon, everyone. We appreciate you joining us today as we discuss our third quarter results and share an update on our progress. This is an important year for Medifast one where the work we've done to transform the business is beginning to align more clearly with the opportunity we see in front of us. The weight loss and wellness industry has undergone fundamental change in a very short time. The rapid growth in consumer understanding and usage of GLP-1 medications has reshaped much of the public conversation around obesity and health, introducing millions of people to a tool for appetite control that leads to weight loss. While these medications are truly groundbreaking, they are not a complete solution to long-term health unless they are paired with lifestyle modifications. Further, most weight challenges are rooted in poor metabolic health, also called metabolic dysfunction, which medication alone does not fully correct. A lifestyle approach that builds healthy habits and protects lean muscle mass during weight loss is essential to improving metabolic health. Since many people discontinue medication, the absence of these fundamental changes often leads to weight regain. For most people, the most durable path forward comes from addressing the underlying metabolic issues, not relying on medication alone. Data across multiple studies paint a consistent picture, up to 40% of the weight loss while on GLP-1 medications comes from lean mass, including muscle. 74% of those on the medications discontinue them within a year and the majority regain much of the weight they lost once they stop. For many, this leads to a cycle of temporary success followed by intense frustration. The opportunity for Medifast is to help break that cycle to empower people not just to lose weight, but to learn how to keep it off…

Thank you, Dan. Good afternoon, everyone. As Dan mentioned earlier, third quarter 2025 results for both revenue and EPS were at the high end of our guidance ranges. Revenue for the third quarter was $89.4 million, a decrease of 36.2% versus the year earlier period, primarily due to a decrease in the number of active earning OPTAVIA coaches. We ended the quarter with approximately 19,500 active earning OPTAVIA coaches, a decrease of 35% from the third quarter of 2024. Average revenue per active earning OPTAVIA coach for the third quarter was $4,585, a year-over-year decrease of 1.9%, primarily driven by continued pressure on client acquisition. We continue to see moderating year-over-year declines in this key metric. Gross profit decreased 41.2% year-over-year to $62.2 million driven by lower sales volumes, partially offset by lower cost of sales. Gross profit margin for the current quarter was 69.5% which decreased 590 basis points compared to the year earlier period, attributable to 450 basis points of loss of leverage on fixed costs and 180 basis points of a reserve for the reformulation of the Essential product line. As Dan mentioned, we expect to introduce a new product line next year which is intended to improve upon the effectiveness of our current essential product line in addressing overall metabolic health. These new products will replace the current Essential line of fuelings that are part of many of our current plans. SG&A expense was down 36% year-over-year to $66.2 million primarily due to a $19.7 million decrease in coach compensation on fewer active earning coaches and lower volumes. Additionally, SG&A expenses in the current quarter reflected decreases of $5.6 million related to company-led marketing compared to 2024 as well as $2.9 million for the company's convention costs and $2 million for the company's collaboration with LifeMD…

[Operator Instructions] Our first question comes from Jim Salera with Stephens.

I wanted to first start with the shifting focus towards metabolic dysfunction and how integrating that messaging with the coaches is going to work. Can you just maybe walk us through the process to make sure that you have consistent messaging among the coaches and that they're all kind of trained up on the new go-to-market or strategy around communicating the kind of holistic view that you guys are taking to weight loss moving forward?

Sure, Jim. Let me also start out by adding that Nick Johnson, our Chief Field Operations Officer and President of OPTAVIA has joined us as well. So I'll make a couple of comments, and then I'll let him talk about what we're doing to make sure that the coaches across the entire country are trained and understand what this new story around metabolic health is. I'll start out by saying that most weight loss challenges and 9 out of 10 of the leading health challenges, for the country are rooted in for metabolic health or sometimes refer to as metabolic dysfunction. Our coaches are aware of this. So it starts out by partially an awareness. But what we've done, probably in the most significant way we ever have is conducted a study partially tied to previous research that we have done, but also taking a deeper dive into the clinical studies to show exactly what our program does with metabolic health and how it is able to reverse metabolic dysfunction. And here's how it links to weight loss. And the -- we talked a little bit about some of these claims or the results of our study in the last call, but I'll just cover them again. The first and significant one is our program targets the bad fat or often referred to as visceral fat and that's the fat around the belly and inside and around vital organs. And it reduces that fat at a clinically significant level. It maintains lean mass and 98% during weight loss. It protects muscle and improves body composition. And you've heard us talk about the other part of our research that shows that when a coach gets involved and helping somebody on the program, the clients are able to lose 10x more weight…

So recently, we met with all of our leaders at a better retreat, our annual leadership retreat that took place in Sundance, Utah. All of those lines of business across our business were actually represented. So with all those leaders of the different lines of business now informed trained and understand where we're going in the direction the metabolic synchronization of proprietary science that addresses neuro versus metabolic dysfunction. From now until the end of the year, those messages, those trainings will continue to be disseminated. And so by the end of the year, we expect to have all of the different coaches all the way down to our core rank of Executive Director trained and steeped in this direction. So we ensure that we are across the network singing from the same song sheet, so to speak.

Great. That's very helpful. Can you speak to just the EDGE program and maybe the incentive structure as again, you kind of expand the aperture and the focus of what coaches are going to be communicating to potential clients. And I would imagine that kind of broadens the range of potential clients they can talk to.

Yes, it's another good one for Nick. So Nick, why don't you take that one as well?

Sure thing. So as we've talked about in the past, the EDGE program is designed around really 3 activities, and they're all based on the same core rank Executive Director. It's for creation of new executive directors, duplication of those directors and then multiplication of those executive directors. So the EDGE program is designed to change the rank composition of the business. Now keep in mind that those executive directors have approximately $6,000 in revenue per Executive Director. They're highly, highly productive. So when we see the rank composition of the business start to shift in a more positive direction, revenue and therefore, productivity go up as the rain composition improves. So we'll continue to focus on the EDGE program, like we said in the past, focusing on becoming and duplicating and multiplying those executive directors. And what we discussed at the Sundance leadership retreat is how we will continue to execute the EDGE program, which will then yield that higher productive coach rank and then fill out the different generations within the pay structure for our top leaders.

Okay. That's helpful. Maybe shifting gears a little bit, Jim, just a couple of questions on the guidance and then some of the results in the quarter. Maybe for starters, it looks like you closed the gap between the decline in SG&A and the decline in the top line. Those are much more kind of aligned than in previous quarters. And I appreciate you gave some detail around just maybe some onetime expenses there. But could you just give us some color around -- is there a way we should think about if the top line is down X percent, SG&A should underperform that by 100 basis points, 200 basis points, just as we think about kind of modeling that on a go-forward basis?

Yes. I mean, as you mentioned, one of the charges in Q3 was an approximate $1.5 million charge for the reformulation of our essential line. So we made the decision in Q3 of 2025. So we took that charge. We believe that's going to be a onetime item. We also mentioned regarding within gross margin that we had a loss of leverage of fixed costs. And what we're -- what we have done. And what we continue to do is make sure that our balance sheet remains strong for the foreseeable future. So we ended the quarter with $170 million in cash and investments. And we're rightsizing the business. We did some actions in October, so last month to rightsize the business to make sure that as we return to growth, the margins will improve. And when you look at our guidance, you mentioned guidance, and we are seeing pressure continue into Q4 with the guidance that we provided. So as I mentioned before on our call, with the way our business works and the way we get back to growth, looking at our metrics, our expectations are that it starts with client acquisition and client retention. And based on the history when we get growth in revenue per active earning coach and a sustained improvement in revenue per active earning coach the growth of it. Typically, we see about 6 to 9 months after that, we typically see coach growth. And obviously, once we get back to coach growth is when you get back to revenue growth, probably within a quarter or 2 from that coach growth. And we've been mentioning to investors, and I believe we mentioned it on our last call, that we're anticipating that to happen in 2025. So we are anticipating that to happen in Q4, but at a minimum, getting back to revenue per active earning coach growth, we believe, will happen at least in the next 6 months. So we're expecting it to happen in Q4 and that will be the first green shoot of stabilization for the company and a path forward to get back to growth. So we're anticipating that happened in Q4, but at a minimum in the next 6 months.

Okay. And maybe on the top line, can you just speak to any outside of, obviously, GLP-1 kind of well-covered trends just broader economic softness and softness we've seen in the consumer. Just any commentary you can offer on how that's been impacting likelihood of consumers to add an incremental monthly expense like OPTAVIA into their budget?

One of the things we continue to see, Jim, and this is not something that's new, but consumers prioritize their health. And this is a health issue that's been with us for quite some time and is not relenting. So we have high satisfaction with those clients who choose to engage in our program as evidenced by their high repeat. And I think we always are looking at what you're asking about, which is does a challenged economy affect consumer spending. I think certainly, the answer is yes. But we continue to see consumers prioritizing the spend on health over other things. So I think we feel optimistic about where we are. I think we have change the value equation to be even more significant with these additional kind of insights into just how our program affects the end consumer. And we see our coaches getting better and better at operating in this current environment. As I said in the prepared remarks, we have now over 60% of our coaches who are supporting at least one client was either on or who has been on a GLP-1 drug and 22% of our client base, either using or having used GLP-1 drugs. So we see our program as valuable in the current environment and relevant for people who are using -- and using a GLP-1 drug and want a lifestyle program who want to do it without a GLP-1 drug because they don't want to or have a negative reaction to the medication or increasingly people who are transitioning off and want to make sure that they can maintain the health of the gain. And now there's one more reason for those who want to get really the root of some of these symptoms of metabolic dysfunction and really focus on the source of the challenge and achieve this lifelong transformation that our coach has been talking about for quite some time.

Got it. And then maybe just one housekeeping question. Jim, I think you had mentioned when you were kind of breaking down the SG&A expenses that you guys were cycling. There's a $2 million -- I think you said $2 million for collaboration with LifeMD. I just want to make sure, is that something that was a onetime expense last year that we're lapping or are you guys sunsetting the LifeMD partnership and that's like on a go-forward basis that's coming out of SG&A?

No, the collaboration is ongoing. What that is, is that was the last in 2024, that $2 million was the last bit of amortization. If you remember, at the beginning of our collaboration, we invested $10 million into LifeMD as part of the collaboration. And that $2 million in Q3 of 2024 represented the last bit of the amortization. So we took the $8 million prior to that. So you won't see that any longer.

We have reached the end of our question-and-answer session. There are no further questions at this time. I would now like to turn the floor back over to Dan Chard for closing comments.

Thanks, everybody, for joining the call today. This continues to be a period of meaningful transformation, as you could hear for the company. And we're evolving with purpose to become a science-backed coach-led leader in metabolic health. Our approach built around the science of metabolic synchronization enables us to target better health rather than just weight loss, reducing visceral fat while preserving lean mass. We're very encouraged by the progress that we're making from the stabilization of coach productivity to advancing new product innovation and digital tools. We remain confident in our strategy, supported by strong balance sheet and a dedicated coach community focused on long-term client success. I look forward to sharing even more when we present at the Stephens Annual Investment Conference in November 19 in Nashville. Thanks again for joining us today and for your continued interest in Medifast.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.