MED Earnings

Operator: Greetings. Welcome to Medifast's Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. At this time, I will turn the conference over to Steven Zenker. Manager of Investor Relations. Steven, you may now begin. Steven Zenker: Good morning, and welcome to Medifast's third quarter 2026 Earnings Conference Call. On the call with me today are Nicholas Johnson, Chief Executive, and James Maloney, chief financial officer. By now, everyone should have access to the earnings release for the third quarter ended September 30, 2026 that went out this morning at approximately 08:05 a.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. Nicholas Johnson: Now I would like to turn the call over to Medifast's Chief Executive Officer, Nicholas Johnson. Thanks, Steven, and good morning, everyone. Thanks for joining us on the call today and for your continued interest in Medifast. Our third quarter was all about execution. With our new brand, Trilogy, now live, new products available, and an enhanced compensation plan and unified coach training platform launched, our 3.0 business is rolling out. Early results are already showing up in the field. We delivered revenue in line with guidance at $72 million. Continuing the trend of stabilizing revenue around $75 million for the fourth consecutive quarter. And coach productivity continues to improve. We believe these trends leave us well positioned to deliver profitability in the fourth quarter. We ended the quarter with $173 million in cash and investments and no debt. And our enterprise value continues to sit below the value of our cash and investments. A debt free balance sheet and a leaner cost structure give us a stable base from which to grow and invest in initiatives that can help deliver scale and profitability. Trilogy is differentiating Medifast in a large and growing metabolic health market. A market that we believe our coaches are well positioned to own. Over the past few months, we launched the Medifast Metabolic Health Institute, introduced our MetaVantage technology ingredient platform, and brought new products and trainings to market that are designed to give us a solid foundation to deliver for clients in the metabolic health category. The brand marks the latest step in our transition from a weight management company to a metabolic health business. Where weight loss is just 1 outcome of better overall metabolic health. Weight loss remains important, but the quality of the weight loss matters more than ever. That means preserving lean mass, protecting muscle, and over time building it. Our 3 phase metabolic health system is designed to deliver those outcomes. Starting with RESET as the first phase. Our 10-year growth strategy is a road map that is designed to expand what we offer coaches and clients within a comprehensive metabolic health system. We are still at the start of that journey, but with our major launches now in market, we are shifting our focus to getting the best possible return out of what we have built. Whether we are talking to investors, coaches, or employees, I consistently emphasize how we are building our 3.0 organization around 4 core tenets. Speed, simplicity, scale, and stewardship. Each of these showed up across our business in concrete ways this quarter. Speed is evident in the pace of the launches we have brought to market this year. We took reset fuelings from an employee and coach pilot in the spring to having products available for coaches and clients by August. With all SKUs expected to be converted to the new reset Fuelings by the end of Q4. We also introduced our new compensation plan and product line within days of each other. We have to make decisions quickly and move resources toward the areas we believe can best drive growth, and do that on a consistent and effective basis. Simplicity is at the heart of the new compensation plan, and the new unified training system called the Trilogy Business Blueprint. The new compensation plan simplifies the structure of our coach organization, rewards coach productivity, and streamlines how coaches advance through the plan. The Trilogy business blueprint consists of the 6 fundamental skill sets every coach needs to build their business. By focusing on these 6 core fundamentals, we reduce low-value-add administrative tasks. Which allows coaches to focus their energy on activities that fuel the flywheel. Namely consistent client acquisition, quality client support, and sponsoring new coaches. An example of our commitment to scaling is the CoachHub. The CoachHub, created by a group of our top field leaders, is where coaches go to learn how to put those 6 fundamental skill sets into practice. With everything they need housed in 1 place. Alongside this, our Trilogy coach certification sets a consistent standard of knowledge across the field. When coaches increase their productivity and reach the rank of executive director, then sponsor new coaches and teach them to do the same, we fuel the flywheel that grows our business. Finally, stewardship is our commitment to making sure that we are providing coaches with an environment in which they can grow their businesses over the long term. Also being profitable as a business. That means holding firm on cost while protecting the capabilities that drive growth. This is the principle behind Catalyst, which I will speak more about in a moment. On the whole, the indicators we are seeing in our business right now are those that have historically come before coach growth and revenue growth. Coach productivity improved year over year for the fourth consecutive quarter, to 54% in Q3 and grew an estimated 8% sequentially. And we expect that trend to continue through the rest of 2026. The percentage of active earning coaches at executive director rank or above rose both year over year and sequentially. Retention among Premier+ clients from the first to the second month has stabilized. With September coming in 6 percentage points higher than Premier. Our enhanced compensation plan was designed to accelerate this kind of leadership development and we are encouraged by what we have seen in the first 2 months since launch. While these results are promising and represent historical indicators of growth, the total number of active earning coaches remains below last year's level. And we expect that trend to continue in the near term. Our Trilogy metabolic health system is designed as a 3-part system. Our foundational phase, RESET, is followed by Phase 2 and Phase 3. REFINE and RENEW, respectively. These will support clients in maintaining their progress over time and ultimately help them to achieve optimal metabolic health. REFINE is designed to improve metabolic flexibility and refine body composition, with the overall goal to help enhance metabolism through better fuel use, leading to less fat storage and more muscle mass. The phase is focused on optimizing metabolic health for long term vitality. For our coaches, they provide additional tools to help support long term client engagement with the Trilogy metabolic system. The energy we saw at our sold out convention in July has carried through this quarter. We are seeing coaches embrace the new brand and products enthusiastically. And we are hearing from them that their conversations with clients increasingly center on health markers like visceral fat and lean mass. That shift in how our coaches describe what we do is an important part of what makes Trilogy different. Trilogy is giving our coaches something new to talk about, as well as a clearer way to talk about it. Medifast's work is built on more than 45 years of clinical and scientific heritage. it is that understanding that has led us to metabolic synchronization, Our proprietary science focused on burning fat, preserving lean muscle, and protecting metabolic health. In an independent clinical study, our RESET 5-and-1 plan reduced visceral fat by 14% while retaining 98% of lean mass over 16 weeks. RESET Fuelings are the first products to fully use our MetaVantage technology platform. A set of proprietary ingredient formulas designed to optimize metabolic health. The MetaVantage reset formula helps unlock key metabolic pathways, reducing waist circumference while also supporting normal fat metabolism and healthy insulin. Since the new Trilogy brand and RESET launch in August, MetaVantage has been well received. Early feedback indicates strong interest in the new formula and its role in supporting the full spectrum of metabolic health. We are continuing to monitor results and coach feedback to determine the impact of launch. But preliminary data indicates fast adoption of our new Trilogy Reset products. With 95% of our active earning coaches in September already offering the line to clients. We believe that this product line will extend our ability to meet the needs of an expanded set of clients, and deepen our differentiation in a crowded market. Metabolic health is a large global business opportunity. Key members of our Medifast Metabolic Health Institute recently attended McKinsey and Stanford Medicine's Metabolic Health Business Building Summit 2026. Where panelists sized the existing metabolic health market at $12 trillion. With an additional $16 trillion in prevention and optimization that is still largely untapped. The panelists expect that the biggest returns will go to companies that build ecosystems and business models. Not just new interventions. Our own view of the market opportunity supports this. More than 90% of US adults are metabolically unhealthy, and we see similar issues around the globe. Our survey of more than 1 thousand U.S. adults conducted last September shows that nearly 94% of Americans are concerned about at least 1 of their metabolic health, and 85% believe metabolic dysfunction can be reversed. Yet 80% say they have limited understanding of what metabolic health means. That gap between concern and understanding is an area of opportunity for our coaches to educate and support. GLP-1 medications continue to accelerate interest in metabolic health. Our view is that long lasting and sustainable results depend on lifestyle change, nutrition, support, and coaching in addition to the medications. And that the businesses that win will be capable of providing an offer that works alongside them rather than competing with them. Weight loss remains important, but the quality of the weight loss matters more than ever. That means preserving lean mass, protecting muscle, and over time building it. Our 3 phase TRILOGY system is designed to do exactly that. Supporting people across the entire spectrum of their health journey. Whether they are on medication, transitioning off it, or never started. 1 of the clearest signs of confidence in our direction this quarter comes from further developments in the field. This company was built on the belief of our founder of the mission and independent Trilogy coach, doctor Wayne Scott Anderson. Who after leaving his medical practice as a critical care physician, dedicated himself to a new mission of lifelong transformation. He invested capital into the business, but also brought incredible energy to the mission, as well as deep trust in the power of people to carry that mission into the world. Doctor Anderson continues to play a leadership role in our coach community today. And what we are seeing now is the next generation of leaders stepping forward with same level of conviction. Like doctor Anderson did all those years ago, a select group of coach leaders are now raising their hands to lead the future growth of the business. They are choosing to invest their time in leadership, as well as their own capital through ownership in the company. The same energy and sense of collaboration that we saw earlier in our journey with doctor Anderson and others, is now being demonstrated by a new generation of leaders, at key events such as the Trilogy Leadership Symposium, or even at the ringing of the closing bell at the New York Stock Exchange in September. This all reflects their deep belief in our mission, confidence in the direction we are headed, and their clear view of the market opportunity in front of us. We view this as a generational moment for our company. What started with the vision and belief of 1 founder is now being amplified by a new generation of leaders who are choosing to put something meaningful behind their belief. And take greater ownership for building what comes next. I am proud of the partnership with our leaders in the field, which was built and strengthened through my almost 10 years as president. I am also honored to work alongside the incredible team members at Medifast. Since I stepped into the CEO role in June, my focus has been on accelerating the 3.0 strategy that our leadership team developed together. That means changing the way our teams work so that we can move faster while keeping firm control on cost. Bringing a comprehensive metabolic health system to market this year, built on new science and new products, and supported by a new digital ecosystem, and a dedicated research arm, shows what we can accomplish when we align around our 4 tenets. Together, they give us the platform to deliver our 10-year growth strategy and become a global leader in metabolic health. With the organizational and structural work now complete, our team is focused on delivery. We launched our Catalyst program in the second quarter, and the majority of its execution took place this quarter. These cost realignment initiatives are designed to accelerate our path to profitability and growth. Catalyst is driving additional savings through facility rationalization, AI related efficiencies, sunsetting of nonstrategic IT applications, and reduction in force to align with our current revenue levels. The program is designed so that it brings down costs while not negatively impacting our ability to grow. It builds on initiatives over the past several years that significantly reduced our cost base, while preserving our core capabilities. And we will continue to review our costs for further opportunities. We are also applying AI more broadly across the business. And over time, we anticipated helping us move faster in product development and in the tools used by our coaches. Our near term commitment has not changed. We are targeting profitability in the fourth quarter of 2026, and we believe we are on track to deliver it. Speed, simplicity, scale, and stewardship are how we will get there. This quarter, we moved quickly to put 3.o into the market. Made it simpler for coaches to build their businesses, put in place standards systems that will allow the field to grow, and held firm on costs. We believe we have a solid strategy for long term growth, a brand and product line that set us apart, science that continues to strengthen, and a coach network that is leaning into the metabolic health opportunity. We still have work to do. Particularly in growing our coach count, but we enter the fourth quarter with each piece of our strategy in place. Our attention is now on delivering results. With that, I will hand over to James to run through the financials. James Maloney: Thank you, Nick. Good morning, everyone. Third quarter 2026 revenue and EPS were within our guidance range, supported by a successful Trilogy launch and a fourth consecutive quarter of year over year coach productivity growth. Revenue for the third quarter was $72 million, a decrease of 19.4% versus the year earlier period. Primarily due to a decrease in the number of active earning coaches. We ended the quarter with approximately 10.2 thousand active earning coaches. Compared to 19.5 thousand for the third quarter of 2025. The company continues to see an impact from the rapid adoption of GLP-1 medication across the traditional weight loss category. Which is contributing to this decline. During the third quarter, we continued to focus on developing a network of the most productive executive director organizations. Which we believe is an important step in returning to coach growth and ultimately revenue growth. This work resulted in average revenue per active earning coach for the third quarter of $7.06 thousand a year over year increase of 54.1%. As Nick mentioned, this metric is now at its highest level in many years. Trending notably higher on both a year over year and sequential basis. We executed on a restructuring action during the quarter, Project Catalyst. Which included facility closures, sunsetting of internal use software, and other related restructuring activities. These changes primarily impacted SG and A, with smaller amounts impacting cost of sales. The specific actions were designed to realign the cost structure of the business, with current sales volumes. While maintaining sufficient capacity to scale the business upon our return to growth. Gross profit for Q3 2026 decreased 19.5% year over year to $50 million driven by lower sales volumes. Gross profit margin for the current quarter was 69.5%, for both the current and prior period. With current period catalyst charges of 32 basis points substantially offset by 22 basis points of costs to reformulate the essential line in the prior period. On a non GAAP adjusted basis, which excludes expenses related to Catalyst, gross profit decreased 16.9% to $51.7 million and moved 22 basis points higher as a percent of revenue to 71.7%. SG and A expense was up 4.8% year over year to $69.4 million primarily due to $13.8 million of catalyst restructuring charges partially offset by a $6.6 million decrease in coach compensation on lower volume and fewer active earning coaches. And a $1.4 million decrease in IT consulting spend. SG and A as a percentage of revenue increased 22 percentage points, primarily due to approximately 19 percentage points of catalyst restructuring costs and 3 percentage points related to our Trilogy convention, for which no convention was held in the comparable year ago period. On a non GAAP adjusted basis, which excludes expenses related to Catalyst, SG&A decreased 16% to $55.6 million and moved 310 basis points higher as a percent of revenue to 77.2%. Loss from operations was $19.4 million in the third quarter of 2026, as compared to $4.1 million for the year earlier period. Primarily as a result of lower gross profit and project catalyst costs impacting SG and A. As a percentage of revenue, loss from operations was 26.9% in the third quarter, as compared to 4.6% in the year earlier comparable period. On a non GAAP adjusted basis, loss from operations improved by 3.2% to $4 million and moved 90 basis points lower as a percent of revenue to 5.5%. Other income, which is primarily comprised of interest income on cash, cash equivalents, and investments in both the current and comparable period increased $100 thousand year over year to $1.5 million Income tax benefit for the period was $300 thousand an effective rate of 1.8%. As compared to $400 thousand for the third quarter of 2025. An effective rate of 14.9%. Due to the existence of a full valuation allowance against its deferred tax assets recorded as of December 31, 2025, the company calculated income tax expense for the current period based on actual results for the quarter. The company's income tax provision for the period reflects discrete items, primarily a $400 thousand change in unrecognized tax benefits due to finalization of a state tax examination partially offset by $100 thousand of state income tax. The non-GAAP adjustments do not impact the income tax benefit for the period, as a result of the valuation allowance. Net loss in the third quarter of 2026 was $17.5 million or $1.57 per diluted share. Compared to $2.3 million or $0.21 per share in the year earlier period. On a non GAAP adjusted basis, net loss in the third quarter was $2.1 million or $0.19 per diluted share. Adjusted EBITDA which excludes stock based compensation and catalyst charges, increased 29.7% to $400 thousand. And adjusted EBITDA, excluding interest income, increased 9.7% to $1.9 million. With respect to our balance sheet, we ended the quarter with $172.5 million in cash equivalents, and investments. And no debt as of September 30, 2026. Now I will turn to guidance. We are expecting fourth quarter revenue to range from $55 million to $75 million and income per share for the quarter to range from $0.00 to $0.25 While we expect to continue to see the active earning coach count to decline through the end of the year, we expect to see continued coach productivity growth during the quarter, up both year over year and sequentially. For the full year 2026, we expect revenue to range from $280 million to $300 million and loss per share between $1.80 and $2.05. For the full year 2026, on a non GAAP basis, we expect loss per share between $0.45 and $0.70 We are expecting fourth quarter adjusted EBITDA, excluding interest income, to range from $2 million to $6 million For the full year 2026, are expecting adjusted EBITDA, excluding interest income, to range from $10 million to $14 million. With that, me turn the call back to the operator for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question at this time, please press 1 on your telephone keypad. You may You may press 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 1 moment, please, for our first question. And our first question from the line of James Salera with Stephens. Please proceed with your question. James Salera: Nick, I wanted to start with some conversations you have had with folks in the field given the continued increase in the coach productivity kind of balanced against the decline in the active number of coaches. Can you just share some thoughts given you guys have a lot of these operational changes, how they are responding, how they are responding to the new know, product rebranding, reformulation, and just kind of engagement that you are seeing with the field team? Nicholas Johnson: Sure thing. Thanks for the question. What we are experiencing since the launch is that took place in the quarter is actually high engagement and energy levels. From if you look at the compensation plan enhanced what we did was we simplified the-- compensation plan, and we anchored the new plan on the creation of healthy executive directors. And executive directors are high producing coaches. So we would expect productivity to improve while the quantity of active learning coaches goes down, we are expecting the quality of those coaches to actually improve, and that was a design change in the plan itself. The other launches have been received very positively. As I said in my prepared remarks, we had a sold out convention where we launched all of these 3.0 initiatives for this first phase. And we see generally excitement continue to build. As I also said in my prepared remarks, the field has unified their training system around the Trilogy business blueprint that is anchored on those 6 foundational core training principles. And then they launched a coach hub, which is really a 1-stop shop for their training system. All anchored on the metabolic health opportunity. James Salera: Can you share any feedback from the coaches just about the competitive landscape? I know if you look at any sort of sporting event or really any prominent television event? there is a lot of advertisements for all these, you know, kind of online places you can order GLP-1s and, you know, people talk about various kind of AI enabled or AI assisted weight loss Can you just kind of talk about how the field team deals with that competitive set if you see more of the customers blending some of those offerings with your offerings? How we should think about that as we sort of try to look at a point of stabilization for the top line? Nicholas Johnson: I think a good way to think about that. Well, first of all, yeah, GLP-1s are ubiquitous in the marketplace, and our coaches do experience them with their clients. Many of them have coached multiple clients on GLP-1s, and we have stats to support that. So they are not running away from the conversation. The conversation is inside of their conversations with their clients and their coaches. And so what I can tell you is that the nature of the conversation has changed from simply the amount of weight that you are losing which is just 1 indication, to the quality of the weight that you are losing. And that is very, very encouraging because what we see with people who are on GLP-1s without the type of system to support the changes that they are undergoing. Is that many people are losing a lot of lean mass. They are losing lean muscle. Skeletal muscle. Which is very difficult to rebuild after a certain age in particular. And so those conversations are happening. So the shift I would characterize as a conversation from just the-- the quantity of the weight that is being lost to the quality of the weight that is lost, the preservation of lean mass, the building of lean muscle, And not only that, it is the key role that muscle plays in resetting 1's metabolism and then building metabolic flexibility. So I would say that the conversations are evolving, and they are developing. In the metabolic health space in the field today. And in the words of many of our top leaders, the GLP-1s are simply a catalyst for many people to start on their health journey. But they know because they have seen and watched these clients progress through that cycle, but the GLP-1s alone without a system to support those changes are simply not enough. To sustain long term and lifelong transformation. James Salera: Do you have any color around average spending per customer that is on a GLP-1 versus 1 that is just exclusively using your program? Nicholas Johnson: Yeah. I mean, Jim. James Maloney: This is James Maloney. So that data we have some anecdotal data, which we you know, do not wanna really share anecdotal data, but it is-- we have-- we do not know exactly each and every customer that is on a GLP-1. Centrally as a company. To get the data we have presented before We have taken surveys of people that are anonymous that we know the percent of clients that are on a GLP-1. But we do not specifically track it by order. If that makes sense. James Salera: Yep. Understood. Maybe, Jim, 1 more on your end. Is there anything else in SG and A? I know you guys have had this kind of ongoing cost out program. Is there anything else in SG and A that we should think about as being able to come out other than, you know, the coach compensation adjustment, which is obviously variable based on the top line? James Maloney: Mhmm. Any other sort of efficiencies that we can extract from the operating model Yeah. I mean, we are not you know, we are not-- The Catalyst program was designed around the concept of, as Nick mentioned, speed and simplicity. And we are looking at removing costs all the time. that do not impact growth. And we believe we have got a good balance there So we are continuing to look at process improvement In our prepared remarks, we mentioned regarding AI and capabilities with AI. We are actually starting to see real results on that. I would say the Q4 results We feel very you look at the bottom line, we feel good about where we are at. In removing costs that do not impact growth But we are. As we are looking into 2027, we believe there is more to do on that front. And it is gonna be more regarding process improvement, looking at artificial intelligence, and capabilities on that front. And as we get back to growth, and this is the more important part of that, as we get back to growth, we believe we are not going to have to add back certain fixed costs that we had in the past because of process improvement in AI. So we do believe there is gonna be leverage in our P&L as we grow in the out-quarters that will be very improved that will help our operating income in the future. James Salera: Great. Thank you. I will pass it on. Operator: Thank you. At this time, I will turn the floor back to Nicholas Johnson for any closing comments. Nicholas Johnson: Thank you for joining us today. And for your continued interest in Medifast. Our quarter was all about execution, and we remain focused on delivering 3.0, which is our 10-year growth strategy. We are energized by the positive momentum in coach productivity. And engagement, and we are confident that the foundational work we are doing today centering on speed, simplicity, scale, and stewardship, leaves us well positioned to deliver profitability in the fourth quarter We look forward to seeing you all on our next call. Have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Disconnect your lines at this time, and have a wonderful day.