Good day and welcome to the Medifast Third Quarter 2021 Earnings Conference Call. Today, all participants will be in a listen-only mode. [Operator Instructions] Please note, today’s event is being recorded. At this time, I would like to turn the conference over to Reed Anderson with ICR. Please go ahead.

Good afternoon and welcome to Medifast’s third quarter 2021 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 period ended September 30, 2021 that went out this afternoon at approximately 4:05 pm Eastern Time. If you have not received the release, it 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. Medifast assumes no obligation to update any forward-looking projections that maybe 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.

Thank you, Reed and good afternoon everyone. Thank you for taking time to be with us. On the call with me today is Jim Maloney, our Chief Financial Officer. I will start with an overview of the third quarter then Jim will run through our financial results in more detail. Following our prepared remarks, we will open up the call for your questions. This has been another strong quarter for Medifast, with positive trends across our business and solid growth in both revenue and earnings. Compared to the same time period last year, revenue increased 52.3% to $413.4 million in the third quarter, while earnings per diluted share rose 22.3% to $3.56. As planned, we run our business builder promotion in August consistent with the prior 2 years. This promotion focuses on driving coach growth by incentivizing sponsorship it’s time when coach leaders are deeply engaged and focus on broadening their reach following our annual convention. The number of independent active earning OPTAVIA Coach has exceeded 61,000 at the end of the third quarter, with growth of 44.9% from the same period last year and up 3% sequentially. Both coaches and the company had to adjust to the new scale of the business and that’s caused them to be expected bottlenecks that were manifesting product delivery delays in our supply chain in the second quarter and early into the third quarter, which impacted coaches and client experience. Consequently, the sequential growth rate in active earning coaches decelerated as existing coaches spend more time supporting the record number of new clients who have entered the OPTAVIA ecosystem rather than onboarding as many new coaches. As planned, we brought new fulfillment capacity fully online at the beginning of August 2021 and this had a significant positive impact on both coach and client…

Thank you, Dan. Good afternoon, everyone. Revenue in the third quarter of 2021 increased 52.3% to $413.4 million from $271.5 million in the third quarter of 2020, reflecting continued growth in the number of active earning OPTAVIA Coaches and higher per coach productivity. We ended the quarter with over 61,000 active earning OPTAVIA Coaches, another new record, up 3% sequentially compared to Q2 and an increase of 44.9% from last year’s third quarter. Average revenue per active earning OPTAVIA Coach for the third quarter was $6,773, also a new record and a 1.7% higher than the previous record set in Q2 of 2021. Versus a year ago, revenue per active earning OPTAVIA Coach was up 7%. Gains in productivity per active earning OPTAVIA Coach for the quarter continued to be driven by an increase in both the number of clients supported by each coach as well as an increase in average client spend. Gross profit for the third quarter of 2021 increased 50.5% to $307.1 million compared to $204 million in the prior year period, primarily as a result of increased revenue partially offset by increased cost of sales. Gross profit margin was 74.3%, down 90 basis points compared to 75.2% in the third quarter of 2020. The primary reason for the year-over-year decline in gross margin was due to the essential start promotional activity in higher product and shipping costs. We continue to expect pressure on gross profit margin through the remainder of 2021 due to planned higher use of co-manufacturers to keep up with demand along with inflation in raw ingredients, freight and labor costs and investments in supply chain and technology to achieve our growth objectives in 2022 and thereafter. We believe gross profit as a percentage of revenue will improve in the longer term as we…

We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Stephanie Wissink with Jefferies. Please proceed.

Hey, it’s Chris Neamonitis on for Steph. Congrats on the quarter, Dan and Jim. I missed…

Thanks, Chris.

I mean, I think coach growth, can you talk about what you saw as far as coach growth and business builder program. How did that trend compared to your expectations? And on the flipside of that, can you talk about what you saw as far as any indications of churn among coaches in the quarter?

Sure. On the coach growth, we felt like it did perform within expectations. I mentioned on the call that one of the things that we recognized as we moved into the quarter from last quarter and we talked about this last time is that our transition from a supply – our supply chain to allow us to reach this new capacity of $2 billion in the transition created longer than expected delivery times. So, that had a little bit of a headwind for our coach-sponsoring activities. So, we felt that the business builder promotion was helpful and successful in giving the additional energy to continue the growth we have seen on the coach sponsorship activity. And what was the second part of your question?

I think that about hit on it. But I guess my follow-up would be is there anyway to quantify the churn number there at least? Do you feel there is an opportunity to reactivate those coaches?

Yes, we don’t typically provide a forecast around the churn number. We feel like what we are seeing in terms of coaches staying with us is consistent with what we have seen in the past. I think the bright spot in the quarter, in addition to our sequential coach growth, was the impact of the essential start program, which brought in a significant number of clients up 50% in September, which is what creates momentum as we move into the back half of the year or actually not the back half of the final quarter of the year and then through the – into next year. So we are confident in our coach’s abilities both to bring in new clients and in their ability to transition a portion of those clients to become active earning coaches, so both in terms of continued growth in our active earning coaches as well as continued robustness in the growth of our clients. We feel confident as we are moving into this business back last quarter in the new year.

That’s helpful. And then just one on the guidance, I get the seasonality anything else you would point to other than just continue behavior in the fourth quarter?

Yes. The only thing – other thing to point to in Q4 we are going to be continuing to invest in our supply chain and technology. So, those additional spend is to continue the growth that we are having. So we are getting ready for that, what I will call investment dollars, those investment dollars will hit the P&L though in Q4, but it’s getting ready for 2022 and beyond.

Got it. Thanks.

At this time, we are showing no further questioners in the queue. And this concludes our question-and-answer session. I would now like to turn the conference back over to Dan Chard for any closing remarks.

Thank you. We would like to thank everyone for joining and reiterate some of the main points of the quarter one. We remain confident that our differentiated health and wellness offering, along with our large and growing addressable market, will allow us to continue to deliver on our long-term growth rate and profit margins of expectations around 15% top line growth and 15% operating margin growth. We also – are feel confident in where we are and building out and scaling our operations both from a supply chain standpoint as well as our digital offering to support our coaches and our growing business. We are also – want to further – we maintained the confidence in our OPTAVIA Coach community and their ability to deliver in this – against our mission of offering the world Lifelong Transformation, One Healthy Habit at a Time. And with that, we will close the call. Thank you.

The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.