Good afternoon. And welcome to Medifast First Quarter of 2022 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 March 31, 2022 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’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 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.

Thank you, Reed, and good afternoon, everyone. Thank you for taking time to be with us today. On the call with me today is Jim Maloney, our Chief Financial Officer. I will start with an overview of the first quarter and the continued evolution of our business. Then Jim will run through our financial results in more detail. Following our prepared remarks, we will open up the call to take your questions. The key takeaway from our latest results is that Medifast continues to achieve significant growth in all of our key underlying metrics driven by demand for our OPTAVIA branded products and services, as well as the strength of our business model. Our proven approach connects customers with OPTAVIA Coaches who support them in learning and maintaining healthy habits focused on eating, exercise, hydration and sleep, helping customers achieve lifelong transformation One Healthy Habit at a Time. We continue to expand our health and wellness platform to support our future growth expectations, and are leveraging proprietary tools and technologies to enhance productivity across the organization. Our first quarter results were outstanding once again, putting us in a strong position for the balance of 2022 and beyond. Revenue increased 22.6% to $417.6 million in the first quarter, a new record for us, fueled by a 21.7% year-over-year increase in the number of independent active earning OPTAVIA Coaches to 63,900, another all-time record. Importantly, the number of OPTAVIA Coaches increased sharply by 6.9% on a sequential basis compared to the previous quarter, reflecting the growing precision of the programming we have implemented and continue to refine over the last several quarters. Coach productivity was similarly strong, reaching $6,536 per active earning OPTAVIA Coach up 1.3% on a year-over-year basis and 3.4%, sequentially. Earnings per diluted share were $3.59, a 3.8% increase…

Thank you, Dan. Good afternoon, everyone. Revenue in the first quarter of 2022 increased 22.6% to $417.6 million from $340.7 million in the first quarter of 2021. We ended the quarter with approximately 63,900 active earning OPTAVIA Coaches, an increase of 21.7% from the first quarter of 2021. Average revenue per active earning OPTAVIA Coach for the first quarter was 6,536, up 1.3% from the prior year period. We were pleased with coach growth and productivity gains in the quarter, driven by continued growth in both the number of customers supported by each coach, as well as an increase in average customer spend. Gross profit for the first quarter of 2022 increased 21.6% to $302.3 million, compared to $248.5 million in the prior year period, reflecting strong revenue growth, partially offset by increased cost of sales. Gross profit margin was 72.4% in the first quarter of 2022 versus 73% in the comparable prior year period. The 60-basis-point decline in gross margin was attributable to continued inflationary pressures in raw ingredient cost and freight and labor costs, as well as the impact of the new customer acquisition program that Dan mentioned. SG&A expenses for the first quarter of 2022 increased 26.3% to $247.2 million, compared to $195.7 million for the first quarter of 2021. SG&A as a percentage of revenue increased 170 basis points year-over-year to 59.2% versus 57.5% in the first quarter of 2021. The increase was primarily due to higher OPTAVIA revenue compensation expense, increased salaries and benefits related expenses for employees, incremental costs related to continued investment in information technology and distribution and increased credit card fees resulting from higher sales. Income from operations increased 4.3% compared to the prior year period or $2.3 million to $55.1 million as a result of higher gross profit, partially offset by…

[Operator Instructions] The first question is from Chris Neamonitis with Jefferies. Please go ahead.

Hey, Jim and Daniel. Firstly, congrats on another impressive quarter and all the color on ongoing initiatives. Could you maybe just walk us through the trends you saw in the business, maybe between February and today through April? Obviously, momentum accelerated nicely. So could you maybe help us think about what’s been driving that since you provided the initial outlook and on that customer acquisition program, is that something new for 2022? So just maybe any more color on that program and how it trended versus your expectation?

Sure. Chris, good to hear from you. And the trends we have been seeing a reflective of what we what we discuss, and yes, it’s driven by this customer acquisition program, which started on March 21st and will run through May 9th. And this is essentially with a few modifications, this program is very similar to what we ran in March of 2020, just after the pandemic hit. It’s designed specifically to focus all of our coaches on new client acquisition. The modification this year versus what we did in 2020 was essentially providing a package -- a product package that did not -- that does not include some of the materials. So it made it a little bit less expensive, specifically $288, but still roughly a $90 savings. And that was done specifically to continue our testing and understanding of how we might attract more lapsed users. So those who have been OPTAVIA customers previously, but may not have been with our coach for some time and we have seen that that’s been a very successful initiative. So we are feeling very positive about that. So the -- like I said, the -- when we did this in 2020, we saw both significant improvement in the year that we executed it. But because of the dynamic of our business, we saw the biggest benefit taking place in Q1 and Q2 of the following year. So we believe that that will be the case with this initiative too. So we run it for the first time in March. We did a version of it in the fourth quarter of this just this past year in 2021 and this program most closely resembles the program that we ran in March of 2020.

That’s very helpful. And then, Jim, maybe for you on the guidance, at the midpoint, you took up the topline higher than earnings. So anything to think about there from a cost perspective that maybe changed since the prior update?

Yeah. I mean there’s a few things. We took the guidance on the topline from $1.75 billion to the midpoint of $1.81 billion. EPS we took up slightly to some degree. So, as Dan just mentioned, the customer acquisition program, even though it was considered in the previous guidance, the program is running better than we thought and that investment in that program is going to have some pressure in our Q2 margins. So, if you look back in 2020, you will see that margins in that year and we are expecting something similar this year in Q2 of 2020, the gross margin decreased about 300 basis points to 350 basis points and we are expecting that same thing to happen this year. So it’s an investment that’s occurring in. 2022 for mainly, as Dan mentioned, for 2023. We are also seeing, like other companies, the inflation hitting. We are seeing that now we have more visibility to the latter part of the year and we are seeing that fuel charges is one of the elements that is increasing due to energy prices just to give you an example. So hopefully that helps you.

No. That’s very helpful. So maybe -- so all of that goes into the gross margin line, right? So is there any way to think about the split or maybe the drag, the split between inflation and the sales program? Thank you.

Yeah. I mean, so, when you look at Q1, the customer acquisition program was about a 90-basis-point charge to the P&L. Our pricing did offset some of that, I will call it, about 30 basis points and then the rest of it in Q1 basically took care of the inflation that we were seeing. We are expecting that the customer acquisition program in Q2 will be, I will call it, 300 basis points to 350 basis points. And we do believe that inflation -- the pricing will offset inflation like we talked about on our last call. But when you get later on in the year, now that we have more visibility, we are seeing some inflation, I will call it, about 50 basis points in the out year, out quarters. So that’s the way I would look at those few items and to help you with your modeling.

That’s very helpful. I will pass it on. Thanks.

The next question is from Linda Bolton Weiser with D.A. Davidson. Please go ahead.

Yeah. Thank you. Can you sort of explain what with this customer acquisition program, it seems that and what I have heard is that coaches start talking to clients fairly soon in their journey about potentially becoming a coach if they think that’s appropriate. So if that occurs maybe within just a few months of maybe when the person becomes a client, why would you say the benefit to this type of program wouldn’t occur for a year in the future? Why wouldn’t the benefits be seen sooner? Thanks.

Thanks, Linda. Yeah. They are benefits both in the immediate term, so reflective of our strong coach growth in the quarter, also a strong new client growth. The point was that the bigger part of the return takes place as that large new client cohort moves through the year and develops further. So it’s essentially to the point that you are making, a portion of those clients will become coaches who will go on and get clients, so that effect that becomes more pronounced in the first part of next year as that cohort is fully developed. So there is a short-term benefit and impact, but the larger benefit, both financially and both from a profitability standpoint because we have already made the investment, as well as from a revenue standpoint because it’s fully mature. It takes place in the following year.

Okay. And then can you kind of remind us, are you planning on an in-person convention this summer in July?

Yes. We are. And the tickets have already gone. So I believe at this point the event is sold out. We anticipate roughly 15,000 coaches to be in Atlanta with us in July.

Okay. And I was just curious you had -- what was the operating cash flow in the quarter?

Yeah. The operating cash flow was, let me get it exactly, for the quarter was $44 million for Q1.

Okay. And then when you -- Dan, when you talk about this larger addressable market of, let’s see, I think you said $230 billion, the health and wellness market in the U.S. How specifically are you going to be changing your offering such that you address this bigger market versus the smaller $7 billion weight management? What assumptions do we need to have happen in order to be able to address that bigger market?

Sure. Part of it is coming out as a result of providing greater support, which will continue to roll out in the form of our digital apps, which will help the more, let’s say, experiential or kind of on demand for the habits of health transformation system. Part of it will come about as we develop and launch products that are specifically tied to helping customers go through and develop other healthy habits. So those want -- similar to those wants that I described that are already being taught but now would be monetized. So think of that as exercise, sleep, hydration in addition to continue to develop the habit of healthy eating.

Okay. Thank you very much.

[Operator Instructions] The next question is from Doug Lane with Lane Research. Please go ahead.

Yeah. Hi. Good afternoon, everybody. Jim, with the inflation being as persistent as it is, is there any discussion of taking additional pricing initiatives in the latter half of the year?

Yeah. I mean, we look at pricing routinely. We have a rhythm that we look at that throughout the year and it’s something that we try to keep close guarded. So I can’t really tell you exactly what we are thinking. But all I can say is, we have been thinking about it and we would want to announce that all at one time to our investors and to our customers all at the same time.

Okay. That makes sense. And in conjunction with the July convention, should we expect some new product announcements activity, anything significant there just directionally?

Yeah. We don’t typically announce or pre-announce new products prior to the convention. So we are going to stick with that tradition, I guess.

Okay. Can we at least expect some new product activity in the broader health and wellness since you have been talking about that so much in the last two or three or four quarterly conference calls. It sounds like something is percolating there?

I will say in the -- so we have continued to launch new fuelings, so you are probably aware of that. The biggest focus in terms of, I mean, we look at the business in two ways. One is those products that support the healthy habits. So think of those as meal replacements and fuelings. We also look at the products and services that support coaches and clients as they develop those healthy habits. The biggest area of focus for this upcoming convention is what you heard us talk about in the form of the OPTAVIA app, which is the app that helps…

Right. Right.

… clients and the OPTAVIA Connect app. So those are the biggest, I will say, both investments and changes to the program for this upcoming convention.

Okay. I got it. And just help us out here, I know that you have got a good, healthy new cohort of customers. And obviously the big win is to move them into being earning coaches and then building a team of earning coaches. But really how many of OPTAVIA customers typically move into being coaches? Is it 10%, 50%, 80%? I mean, just how big a percentage currently do your customers move into being coaches?

Yeah. I think it’s a great question. It’s relatively a small percentage. Without giving you the exact number, it’s lower than the numbers that you were stating and that’s really to be expected, it takes a lot, I mean, the majority of our revenue over 95% comes from those who are just clients. And to your point, a portion of those become coaches, but it’s a small percentage, Doug, and that’s what our model is kind of tied to. We don’t need a large percentage of those clients becoming coaches. But we have seen that number be very constant and steady over the years.

Okay. That’s helpful. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Chard for any closing remarks.

I will close by thanking all of you for your interest in Medifast and also recognize the efforts of our OPTAVIA Coaches, as well as the meaningful journey that our OPTAVIA clients are on. We appreciate your participation in today’s call and look forward to speaking with you again next quarter.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.