Medifast's Q3 2025 Earnings Call: Contradictions Emerge on Marketing Strategy, ASCEND Program, and SG&A Impact

Date of Call: None provided

Financials Results

• Revenue: $89.4M, down 36.2% YOY
• EPS: $0.21 loss per diluted share, compared to $0.10 income per diluted share in prior year
• Gross Margin: 69.5%, down 590 basis points YOY (450 bps loss of leverage; 180 bps reserve for Essential reformulation)
• Operating Margin: -4.6% (loss from operations), compared to 1.5% income from operations in prior year

Guidance:

• Q4 revenue expected to be $65M–$80M.
• Q4 loss per diluted share expected to be $0.70–$1.25.
• Management expects revenue-per-active-earning-coach stabilization starting in Q4 (or within six months), with coach growth to follow ~6–9 months after sustained RPAEC improvement.

Business Commentary:

• Revenue and Coach Productivity Trends:
• Medifast reported revenue of $89.4 million for the third quarter, a 36.2% decrease year-over-year, with active earning OPTAVIA coaches declining to approximately 19,500, a 35% decrease from the previous year.

• The decline in revenue and coach productivity was primarily due to a decrease in the number of active earning coaches and continued pressure on client acquisition.

• Coach Training and Metabolic Health Focus:

• Medifast is shifting its focus from weight loss to metabolic health, with coaches now trained on the science of metabolic synchronization to reverse metabolic dysfunction.

• The training of coaches is driven by the recognition that 90% of US adults are metabolically unhealthy, presenting a significant growth opportunity.

• Expansion of Target Client Base:

• Medifast is expanding its client base to include people focused on metabolic health, not just weight loss, with 61% of coaches working with clients using GLP-1 medications and 22% of clients reporting GLP-1 medication use in the past year.

• This expansion is aimed at addressing the growing consumer awareness and usage of GLP-1 medications, highlighting the complementary role of Medifast's program.

• Innovation and Product Development:

• Medifast is planning the introduction of a new product line next year, aimed at improving upon the effectiveness of its Essential product line in addressing overall metabolic health.
• This innovation is in response to the need for next-generation metabolic health solutions, combining clinical credibility and human connection.

Sentiment Analysis:

Overall Tone: Neutral

• 'Revenue for the third quarter was $89.4 million, a decrease of 36.2% versus the year earlier period' and 'Net loss ... $0.21 loss per diluted share' indicate weak near-term results; management also emphasized a 'strong balance sheet, no debt, and $173.5 million in cash and investments' and 'building for long-term sustainable growth', reflecting cautious optimism.

Q&A:

• Question from Jim Solari (Stevens): 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?
  Response: Leadership was trained at a national retreat and clinical findings are being cascaded; management expects coaches down to Executive Director rank to be trained on 'metabolic synchronization' by year‑end to ensure consistent messaging.

• Question from Jim Solari (Stevens): Can you speak to just the Edge program and maybe the incentive structure as, again, you kind of expand the aperture of the focus of what coaches are going to be communicating to potential clients? I would imagine that kind of broadens the range of potential clients they can talk to?
  Response: Edge is focused on creating, duplicating, and multiplying Executive Directors to shift rank composition toward higher‑productivity coaches (about $6k revenue per Executive Director) to drive revenue and coach productivity.

• Question from Jim Solari (Stevens): Maybe on the guidance and then some of the results in the quarter. Is there a way we should think about if the top line’s down X percent, SG&A should underperform that by 100 basis points, 200 basis points, just as we think about modeling that on a go-forward basis?
  Response: Q3 included a one‑time ~$1.5M Essential reformulation charge; company is right‑sizing costs, expects RPAEC stabilization in Q4 (or within six months) and anticipates coach growth 6–9 months after sustained RPAEC improvement, which will drive margin recovery.

• Question from Jim Solari (Stevens): Can you just speak to any broader economic softness and how that’s been impacting the likelihood of consumers to add an incremental monthly expense like OPTAVIA into their budget?
  Response: Management said consumers continue to prioritize health; high client satisfaction and repeat behavior plus program relevance for GLP‑1 users support resilience despite macro softness.

• Question from Jim Solari (Stevens): I think you had mentioned a $2 million collaboration with LifeMD — is that a one-time expense last year that we’re lapping, or are you sunsetting the LifeMD partnership?
  Response: The $2M in Q3 2024 was the final amortization of the original $10M LifeMD investment; the collaboration continues and no further amortization will recur.

Contradiction Point 1

Marketing Strategy and Effectiveness

It involves a shift in emphasis on the effectiveness of different marketing channels, which impacts the company's approach to customer acquisition and engagement.

How will company-supported marketing drive consumer engagement? - Jim Solari (Stevens)

2025Q3: Company-supported marketing is effective in re-engaging past clients but less efficient for acquiring new clients. Our coaches sharing personal stories is more impactful and efficient. - Dan Chard(CEO)

How will company-supported marketing drive consumer engagement? - James Ronald Salera (Stephens Inc., Research Division)

2025Q2: While company-supported marketing has been effective to re-engage past clients, it has become less efficient to acquire new clients and we are focusing more on coaching powered marketing, which is more impactful and efficient. - Dan Chard(CEO)

Contradiction Point 2

ASCEND Program and GLP-1 Use Cases

It relates to the role and effectiveness of the ASCEND program in supporting clients using GLP-1 drugs, which directly impacts the company's positioning and offerings in the market.

Can you provide an update on ASCEND, particularly regarding GLP-1 use cases? - Jim Solari (Stevens)

2025Q3: ASCEND continues to meet expectations, supporting clients on GLP-1 drugs and those transitioning to a maintenance phase. Clients use the 5 & 1 program while on GLP-1s and transition to ASCEND later. - Dan Chard(CEO)

Can you provide an update on ASCEND, particularly regarding GLP-1 use cases? - James Ronald Salera (Stephens Inc., Research Division)

2025Q2: ASCEND continues to meet expectations, supporting clients on GLP-1 drugs and those transitioning to a maintenance phase. Both ASCEND and ACTIVE lines are crucial for our overall programs as they maintain lean body mass and support muscle growth. - Dan Chard(CEO)

Contradiction Point 3

Focus on Company-Led Marketing vs. Coaching Impact on SG&A

It involves differing explanations of how the shift in focus from company-led marketing to coaching impacts SG&A, which affects financial expectations and operational strategy.

How should we think about the decline in SG&A and the top line aligning more closely? - Jim Solari(Stevens)

2025Q3: The company took a $1.5M charge for Essential line reformulation. The business is being rightsized for future growth. We expect to return to growth in the next six months, starting with revenue per active earning coach. - Steve Zenker(CFO)

How does shifting from company-led marketing to coaching affect SG&A expenses? - Jim Salera(Stephens)

2025Q1: Company-led marketing efforts are being reduced, but they are still being used for reactivation. The focus on coaching is key for efficient customer acquisition. The reduction in company-led marketing is not expected to significantly affect SG&A. - Jim Maloney(CFO)

Contradiction Point 4

Economic Impact on Customer Spending

It involves differing perspectives on how economic softness and consumer spending are impacting the likelihood of adding an incremental monthly expense like OPTAVIA, which directly affects customer acquisition and retention.

How are economic conditions and consumer spending affecting the likelihood of considering an additional monthly expense like OPTAVIA? - Jim Solari (Stevens)

2025Q3: Consumers prioritize spending on health. Our program is valuable and relevant in current economic conditions. It offers benefits for those using GLP-1 drugs, wanting to avoid them, or transitioning off them. We continue to see high client satisfaction and repeat rates. - Dan Chard(CEO)

Given the 1Q revenue guide, does it reflect expected improvements with the ASCEND launch and company-supported marketing efforts? What are the key factors influencing the 1Q revenue guide? - James Salera (Stephens)

2024Q4: It is a couple of different things that's impacting. One, the uncertainty, the economic uncertainty, the softness generally in the economy. And then there is a bit of a backlog of people who want to come into the program that are waiting. - Jim Maloney(CFO)

Contradiction Point 5

Marketing Spend and Growth Strategy

It highlights differing perspectives on the company's marketing strategy and its impact on growth, which is crucial for investor expectations and business planning.

How should we understand the decline in SG&A expenses in relation to revenue trends? - Jim Solari (Stevens)

2025Q3: The marketing approach is being adjusted, focusing on optimizing messaging and media mix, which has begun showing improvements. The emphasis will be on efficient use of marketing dollars rather than significant increases in spending. - Jim Maloney(CFO)

What is the expected marketing cadence for 2025? Will the new product launch drive more marketing visibility in the first half of 2025? - James Salera (Stephens)

2024Q4: The business is being rightsized for future growth. We expect to return to growth in the next six months, starting with revenue per active earning coach. - Steve Zenker(Vice President of Investor Relations)