MEDIFAST INC

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Certain information in this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Act”). Forward-looking statements generally can be identified by use of phrases or terminology such as “intend,” “anticipate,” “expect” or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals, or targets contained herein are also considered forward-looking statements. These statements are based on the current expectations of our management and are subject to certain events, risks, uncertainties, and other factors. These risks and uncertainties include, but are not limited to, those described in our 2023 Form 10-K and those described from time to time in our future reports filed with the SEC. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward-looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this report. All of the forward-looking statements contained herein speak only as of the date of this report. We undertake no obligation to update any information contained in this report or to publicly release the results of any revisions to forward-looking statements to reflect events or circumstances of which we may become aware after the date of this report.

Current wording

Certain information in this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Act”). Forward-looking statements generally can be identified by use of phrases or terminology such as “intend,” “anticipate,” “expect,” or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals, or targets contained herein are also considered forward-looking statements. These statements are based on the current expectations of our management of Medifast and are subject to certain events, risks, uncertainties, and other factors. These risks and uncertainties include, but are not limited to, those described in our 2023 Form 10-K and those described from time to time in our future reports filed with the SEC. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward-looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this report. All of the forward-looking statements contained herein speak only as of the date of this report. We undertake no obligation to update any information contained in this report or to publicly release the results of any revisions to forward-looking statements to reflect events or circumstances of which we may become aware after the date of this report.

Previous wording

Medifast is the health and wellness company known for its habit-based and Coach-guided lifestyle solution OPTAVIA®. The Company has initiated its business transformation to build a set of differentiated capabilities, reflecting its commitment to providing comprehensive health and wellness solutions to customers as both their needs and the industry evolve, that are expected to position Medifast to be leader in the dynamic and changing health and wellness space. As part of this transformation the Company is expanding its product offerings to include sports nutrition products and targeting individuals in the medically supported weight loss market.

Current wording

Medifast is the health and wellness company known for its habit-based and Coach-guided lifestyle solution OPTAVIA®. As a physician-founded company with more than 40 years of history, OPTAVIA's lifestyle plans deliver clinically proven health benefits, utilizing scientifically developed products and a framework for habit creation reinforced by independent Coaches and community support. The Company has initiated its business transformation to build a set of differentiated capabilities, reflecting its commitment to providing comprehensive health and wellness solutions to customers as both their needs and the industry evolve, that are expected to position Medifast to be a leader in the dynamic and changing health and wellness space. As part of this transformation, the Company entered into a collaboration with LifeMD, Inc. (Nasdaq: LFMD) (“LifeMD”) in December of 2023, and launched a significant Company-led marketing effort in May of 2024. Medifast has created a well-capitalized business that has a powerful business model, building a network of approximately 33,900 independent active earning Coaches providing consistent and effective support to customers on their weight loss journeys.

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In a rapidly changing health and wellness landscape, Medifast is committed to innovating and building upon its scientific and clinical heritage to deliver on its mission of offering the world Lifelong Transformation, One Healthy Habit at a Time®. With the growing interest in medically supported weight loss and GLP-1 medications powering the emergence of an important new market for products and services to support patients on their health and wellness journey, Medifast is transforming its business to capitalize on this opportunity. Through a collaboration with LifeMD, Inc. (Nasdaq: LFMD) (“LifeMD”), a national virtual primary care provider, our customers now can access all-in-one holistic solutions that help make a healthy lifestyle second nature, whether individuals are currently using medical weight loss options, are looking for further support after they stop taking medication, or as they transition off medications. In addition to lifestyle support and a simple roadmap for habit creation, the integrated offering includes scientifically developed nutritional support solutions such as product kits designed to help mitigate GLP-1 medication side effects, including muscle loss. As the medications for weight loss continue to evolve and grow,

Current wording

In a rapidly changing health and wellness landscape, Medifast is committed to innovating and building upon its scientific and clinical heritage to deliver on its mission of offering the world Lifelong Transformation, Making a Healthy Lifestyle Second Nature™. With the growing interest in medically supported weight loss and GLP-1 medications powering the emergence of an important new market for products and services to support individuals on their health and wellness journey, Medifast is transforming its business to capitalize on this opportunity. Through the Company’s collaboration with LifeMD, Inc., OPTAVIA customers now have access to all-in-one holistic solutions, whether they are not utilizing medically supported weight loss, are currently using medical weight loss options, transitioning off medications, or looking for further support after stopping taking medications.

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In December of 2023, the Company entered into a collaboration agreement with LifeMD, a leading provider of virtual primary care. This collaboration brings together OPTAVIA’s personalized habit-based, coach-guided approach with medical expertise from board-certified affiliated LifeMD clinicians and access to weight loss medications, including GLP-1s. With this collaboration, the Company and LifeMD intent to develop an integrated offering with the goal of creating a comprehensive and seamless solution for customers who desire to use medications and OPTAVIA’s lifestyle enhancement program. In the second quarter of 2024, we expect to take a key interim step, as we begin offering a lifestyle program with a dedicated OPTAVIA coach, balanced nutrition options with our GLP-1 Nutrition Support Kit, and, through LifeMD, access to a medical provider and blood work, as well as prescription and insurance support.

Current wording

This collaboration brings together OPTAVIA’s personalized habit-based, coach-guided approach with medical expertise from board-certified affiliated LifeMD clinicians, allowing access to weight loss medications, including GLP-1 medications, when clinically appropriate. With this collaboration, the Company and LifeMD are developing an integrated offering with the goal of creating a comprehensive and seamless solution for customers who desire to use medications and OPTAVIA’s lifestyle enhancement program, outlined in further detail below. In addition to lifestyle support and a simple roadmap for habit creation, the integrated offering includes scientifically developed nutritional support solutions including a GLP-1 Nutrition Support product kit designed to help mitigate GLP-1 medication side effects, such as muscle loss. Through LifeMD, customers also have access to a medical provider and blood work, as well as prescription and insurance support.

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Medifast is dedicated to maintaining a relentless focus on the development of additional products and supplements designed to meet customer needs.

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As the medications for weight loss continue to evolve and grow, Medifast is dedicated to maintaining a relentless focus on the development of additional support products and supplements designed to meet customer needs and to make living a healthy lifestyle second nature.

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•Independent OPTAVIA Coaches: Independent OPTAVIA Coaches provide individualized support and guidance to customers on the path to optimal health and wellbeing.

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•Independent OPTAVIA Coaches: Independent OPTAVIA Coaches provide individualized support and guidance to customers on the path to optimal health and wellbeing. The Coaches have impacted more than 3 million lives to date.

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•OPTAVIA Community: A Community of like-hearted people providing each other with real-time connection and support.

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•OPTAVIA Community: A Community of like-minded people provide real-time connection and support.

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•Products & Plans: Clinically proven plans and scientifically developed products, backed by dietitians, scientists, and physicians.

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•Products & Plans: Lifestyle plans with clinically proven health benefits and scientifically developed products, backed by dietitians, scientists, and physicians.

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•Clinicians as Partners: Through the collaboration with LifeMD, OPTAVIA customers have access to board-certified affiliated clinicians and medication, such as GLP-1 medications, that support treatment plans for obesity and other health conditions.

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•Clinicians as Partners: Through the collaboration with LifeMD, OPTAVIA customers have access to LifeMD’s board-certified affiliated clinicians and medication, such as GLP-1 medications when clinically appropriate, that support treatment plans for obesity and other health conditions.

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Across our offerings, we help customers achieve their health goals through a network of OPTAVIA Coaches, about 90% of whom were customers first. OPTAVIA Coaches introduce customers to a set of healthy habits, in most cases starting with the habit of healthy eating, and offer exclusive OPTAVIA-branded products, including Fuelings as well as OPTAVIA ACTIVE®, a new line of essential amino acid supplements and protein powders. Fuelings are nutrient-dense, portion-controlled, nutritionally interchangeable, and simple to use. They are formulated with high-quality ingredients and contain probiotic BC 30™ cultures, which help support digestive health, as part of a balanced diet and healthy lifestyle, vitamins and minerals, as well as other nutrients essential for good health. Our products are used as tools and support the process of integrating healthy habits into our customers' daily life.

Current wording

Across these offerings, customers are aided in achieving their health goals through a network of OPTAVIA Coaches, about 90% of whom were customers first. OPTAVIA Coaches introduce customers to a set of healthy habits, in most cases starting with the habit of healthy eating, and offer exclusive OPTAVIA-branded products, including Fuelings as well as OPTAVIA ACTIVE®, a line of essential amino acid supplements and protein powders. Fuelings are nutrient-dense, portion-controlled, nutritionally interchangeable, and simple to use. They are formulated with high-quality ingredients and contain BC30™ probiotic cultures, which help support digestive health as part of a balanced diet and healthy lifestyle, vitamins and minerals, as well as other nutrients essential for good health. Our products are used as tools and support the process of integrating healthy habits into our customers' daily lives.

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The entrepreneurial spirit of our OPTAVIA Coaches is another key to our success, as they create a continuous cycle of growth, activating new customers, many of whom go on to become OPTAVIA Coaches. We offer economic incentives designed to support each OPTAVIA Coach’s long-term success, which we believe plays an important role in their financial wellness, providing the opportunity to improve their finances while changing the health trajectory of families, communities, and generations.1

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The entrepreneurial spirit of our OPTAVIA Coaches is another key to our success, as they activate new customers, many of whom go on to become OPTAVIA Coaches. We offer economic incentives designed to support each OPTAVIA Coach’s long-term success, which we believe plays an important role in their financial wellness, providing the opportunity to improve their finances while changing the health trajectory of families, communities, and generations.1

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OPTAVIA Coaches are independent contractors, not employees, who support customers and market our products and services primarily through word of mouth, email, and social media channels such as Facebook, Instagram, X, and video conferencing platforms. As entrepreneurs, OPTAVIA Coaches market our products to friends, family, and other acquaintances. OPTAVIA products are shipped directly to customers who are working with an OPTAVIA Coach. OPTAVIA Coaches do not handle inventory or deliver merchandise to customers. This arrangement frees our OPTAVIA Coaches from having to manage inventory and allows them to maintain an arms-length transactional relationship while focusing their attention on support and encouragement.

Current wording

OPTAVIA Coaches are independent contractors, not employees, who support customers and market our products and services primarily through word of mouth, email, and social media channels such as Facebook, Instagram, X (formerly known as Twitter), and video conferencing platforms. As entrepreneurs, OPTAVIA Coaches market our products to friends, family, and other acquaintances. OPTAVIA products are shipped directly to customers who are working with an OPTAVIA Coach. OPTAVIA Coaches do not handle inventory or deliver merchandise to customers. This arrangement frees our OPTAVIA Coaches from having to manage inventory and allows them to maintain an arms-length transactional relationship while focusing their attention on support and encouragement.

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With the expansion of our business to include GLP-1 support tools, we are leveraging multiple channels to enhance customer acquisition and spur meaningful growth. OPTAVIA Coaches remain a fundamental component of our business, and their outreach around our integrated wellness offering is one channel to drive customer acquisition. Additionally, we are collaborating with LifeMD to activate their patient base as another channel to acquire customers. Further, we are investing in a high-impact national marketing campaign designed to drive customer acquisition, elevate brand awareness, and foster deep

Current wording

With the expansion of our business to include GLP-1 support tools, we are leveraging multiple channels to enhance customer acquisition and spur meaningful growth. OPTAVIA Coaches remain a fundamental component of our business, and their outreach around our integrated wellness offering is one channel to drive customer acquisition. Additionally, we are collaborating with LifeMD to activate their patient base as another channel for us to acquire customers. Further, in May 2024, we launched a national marketing campaign designed to drive customer acquisition and elevate brand awareness. Additional information surrounding the marketing campaign can be found in the section below titled, “Recent Initiatives.” These new acquisition channels and investments are intended to evolve the Company’s current single-channel Coach-focused business model to be one that pairs company advertising with relationship-based Coaching and the ability to access weight loss medications through our collaboration with LifeMD. Collectively, we believe these initiatives will significantly broaden OPTAVIA’s reach, advancing its mission to empower individuals on their own health journeys, and fuel positive outcomes and revenue streams. We anticipate this momentum will lay the foundation for improved performance in 2025 and beyond.

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Certain global economic challenges including the impact of inflation have caused macroeconomic uncertainty and volatility in markets where we, our suppliers and our OPTAVIA Coaches operate.

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Certain economic challenges including the impact of inflation have caused macroeconomic uncertainty and volatility in markets where we, our suppliers and our OPTAVIA Coaches operate.

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We are exposed to market risks from changes in commodity or other raw material prices. Rising inflation could impact our cost structure and has put pressure on consumer spending. Increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition, or results of operations. Our variable cost structure can be utilized to adapt to changing market conditions with potential actions including adjustments to our manufacturing, distribution, and customer support infrastructure. As a response, we may periodically take incremental pricing actions to offset supply chain costs and inflationary pressures.

Current wording

We are exposed to market risks from changes in commodity or other raw material prices. Rising inflation could impact our cost structure and has put pressure on consumer spending. Increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition, or results of operations. Our variable cost structure can be utilized to adapt to changing market conditions with potential actions including adjustments to our manufacturing, distribution, and customer support infrastructure.

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In response to changing macroeconomic conditions, the Company may take further actions that alter its business operations as may be required by governmental authorities, or that are determined to be in the best interests of its employees, stockholders, OPTAVIA Coaches and customers.

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In response to changing macroeconomic conditions, the Company may take further actions that alter its business operations that are determined to be in the best interests of its employees, OPTAVIA Coaches and customers, such as evaluating our operational footprint or taking incremental pricing actions to offset supply chain costs and inflationary pressures. The supply chain optimization completed in the quarter ended June 30, 2024, as discussed in Item 1. Notes to Condensed Consolidated Financial Statements are examples of such actions.

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The weight loss industry is very competitive and encompasses a diverse array of weight loss products and programs. These include a wide variety of commercial weight loss programs, pharmaceutical products, surgical interventions, books, self-help diets, dietary meal replacements, and appetite suppressants as well as digital tools, app-based health and wellness monitoring solutions, and wearable trackers. The weight loss market is served by a diverse array of competitors. Potential customers seeking to manage their weight can turn to traditional center-based competitors, online diet-oriented sites, self-directed dieting, and self-administered products such as prescription medications, over-the-counter medications, and supplements as well as medically supervised programs.

Current wording

The weight loss industry is very competitive and encompasses a diverse array of weight loss products and programs. These include a wide variety of commercial weight loss programs, pharmaceutical products, surgical interventions, books, self-help diets, dietary meal replacements, and appetite suppressants as well as digital tools, app-based health and wellness monitoring solutions, and wearable trackers. Potential customers seeking to manage their weight have many options and can turn to online diet-oriented sites, self-directed dieting, traditional center-based competitors, and self-administered products such as prescription medications, over-the-counter medications, and supplements as well as medically supervised programs.

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Medical weight loss solutions, such as GLP-1 medications, have become an increasingly key component of the overall health and wellness ecosystem, and the recent surging awareness and popularity of these weight loss medications serve as another major competitor, as these products have prompted a huge change in the way that consumers think about weight loss and lifestyle modification solutions in general. We recognize that these weight loss medications have attracted significant attention from the market and pose a threat to our interactions with our customer base. Importantly, the efficacy claims of GLP-1 medications for weight loss are based specifically on their incorporation of lifestyle changes that include a reduced calorie diet and increased physical activity. As a result, under Medifast’s offering, weight loss medications become one important element in an overall tailored lifestyle plan that also includes Coaching, community support, nutritionally balanced meals, and exercise.

Current wording

Medical weight loss solutions, such as GLP-1 medications, have become an increasingly key component of the overall health and wellness ecosystem, and the recent surging awareness and popularity of these weight loss medications serves as another major competing factor, as these products have prompted a huge change in the way that consumers think about weight loss and lifestyle modification solutions in general. We recognize that these weight loss medications have attracted significant attention from the market and pose a threat to our interactions with our customer base. Importantly, the efficacy claims of GLP-1 medications for weight loss are based specifically on their incorporation with lifestyle changes, such as through a structured program like OPTAVIA, that include a reduced calorie diet and increased physical activity. As a result, under Medifast’s offering, access to weight loss medications becomes one important element in an overall tailored lifestyle plan that also includes Coaching, community support, nutritionally balanced meals, and exercise.

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GLP-1 medications that meet the FDA weight loss mandate are prescribed along with the recommendation to make lifestyle modifications, such as through a structured program like OPTAVIA, that encourages a reduced-calorie diet and increased physical activity. Our research shows that most of those who are interested in weight loss medication are also looking for support beyond a prescription, including clarity on how to incorporate healthy eating and exercise into their lifestyles while using these medical solutions. While medically supported weight loss can be effective, long-term success is dependent on the nutrition and lifestyle changes individuals make in combination with taking medication.

Current wording

Our research shows that most of those who are interested in weight loss medications are also looking for support beyond a prescription, including clarity on how to incorporate healthy eating and exercise into their lifestyles while using these medical solutions. While medically supported weight loss can be effective, long-term success is dependent on nutrition and lifestyle changes.

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We believe our scientific and clinical heritage combined with our commitment to evaluating programs, plans and products through clinical research are primary differentiators that allow us to compete in these markets. Our scientifically designed products were originally developed by a physician, and we have been on the cutting edge in the development of nutrition and weight-management products since our founding.

Current wording

We believe our scientific and clinical heritage combined with our commitment to evaluating programs, plans and products through clinical research are primary differentiators that allow us to compete in these markets. Our scientifically designed products were originally developed by a physician, and we have continued the development of nutrition and weight-management products since our founding.

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These macroeconomic uncertainties make it challenging for our management to estimate our future business performance. However, we intend to continue to actively monitor the impact of these developments on our business and will update our practices accordingly.

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These macroeconomic uncertainties make it challenging for our management to estimate our future business performance. However, we intend to continue to actively monitor the impact of these developments on our business and will update our practices accordingly. Medifast has perfected our model over the last 40 plus years, with habits, Coaches, and community at the core, and we will continue to innovate as the industry evolves.

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In response to the current competitive landscape, in which acquiring customers has become more difficult due to competitive pressures from GLP-1 medications being sought after by our potential customers, the Company is focusing on a number of initiatives to aid in increasing revenue and profit growth in the years ahead. At the core of the Company’s initiatives is its desire to grow its business by broadening its customer base through increased brand visibility and recognition, and by significantly expanding its total addressable market.

Current wording

In response to the current competitive landscape, in which acquiring customers has become more difficult due to competitive pressures from GLP-1 medications being sought after by our potential customers, the Company is focusing on a number of initiatives to aid in increasing revenue and profit growth in the years ahead. At the core of the Company’s transformation is its desire to grow its business by broadening its customer base through increased brand visibility and recognition, and by significantly expanding its total addressable market.

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Areas of investment anticipated for the year include instituting a new marketing campaign and upgrading customers’ digital experience to increase brand awareness and drive customer adoption, as well as cultivating new customers through the Company’s collaboration with LifeMD.

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Areas of investment include executing our new marketing campaign as well as cultivating new customers through the Company’s collaboration with LifeMD.

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The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in our critical estimates during the first three months of 2024.

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The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in our critical estimates during the first six months of 2024.

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Our product sales accounted for approximately 98% of our revenues for each of the three months ended March 31, 2024 and 2023.

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Our product sales accounted for approximately 97% of our revenues for each of the three months ended June 30, 2024 and 2023.

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Revenue: Revenue decreased $174.2 million, or 49.9%, to $174.7 million for the three months ended March 31, 2024 from $349.0 million for the three months ended March 31, 2023. The average revenue per active earning OPTAVIA Coach was $4,623 for the three months ended March 31, 2024 compared to $5,945 for the three months ended March 31, 2023. The decline in revenue for the three months ended March 31, 2024 was primarily driven by a decrease in the number of active earning OPTAVIA Coaches to 37,800 as of March 31, 2024 from 58,700 as of March 31, 2023, the decline in the productivity per active earning OPTAVIA Coach, and a $9.1 million impact from a timing difference related to changes in the Company’s sales order terms and conditions with its customers realized in the first quarter of 2023. The decrease in productivity per active earning OPTAVIA Coach for the quarter was driven by continued pressure on customer acquisition.

Current wording

Revenue: Revenue decreased $127.6 million, or 43.1%, to $168.6 million for the three months ended June 30, 2024 from $296.2 million for the three months ended June 30, 2023. The decline in revenue for the three months ended June 30, 2024 was primarily driven by a decrease in the number of active earning OPTAVIA Coaches to 33,900 as of June 30, 2024, a 36.2% decrease from 53,100 as of June 30, 2023 and the decline in the productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach was $4,972 for the three months ended June 30, 2024, a 10.9% decrease compared to $5,578 for the three months ended June 30, 2023. Revenue decreased $301.9 million, or 46.8%, to $343.3 million for the six months ended June 30, 2024 from $645.2 million for the six months ended June 30, 2023. The decline in revenue for the six months ended June 30, 2024 was driven by a decrease in the number of active earning OPTAVIA Coaches, the decline in productivity per active earnings OPTAVIA Coach, and a $9.1 million impact from a timing difference related to changes in the Company’s sales order terms and conditions with its customers realized in the first quarter of 2023. The average revenue per active earning OPTAVIA Coach was $4,788 for the six months ended June 30, 2024, a 17.0% decrease compared to $5,771 for thesix months ended June 30, 2023. The decrease in productivity per active earning OPTAVIA Coach for the three months ended June 30, 2024 and six months ended June 30, 2024 was driven by continued pressure on customer acquisition.

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Cost of sales: Cost of sales decreased $55.1 million, or 53.8%, to $47.4 million from $102.6 million for the three months ended March 31, 2024 from the corresponding period in 2023. The decrease in cost of sales for the three months ended March 31, 2024 was primarily driven by decreased volumes, efficiencies in inventory management, and cost savings from our Fuel for the Future initiatives.

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Cost of sales: Cost of sales decreased $40.4 million, or 47.2%, to $45.1 million from $85.5 million for the three months ended June 30, 2024 from the corresponding period in 2023. Cost of sales decreased $95.5 million, or 50.8%, to $92.6 million from $188.1 million for the six months ended June 30, 2024. The decrease in cost of sales for the three months ended June 30, 2024 and the six months ended June 30, 2024 was primarily driven by decreased volumes, cost savings from our Fuel for the Future initiatives, and efficiencies in inventory management.

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Gross profit: For the three months ended March 31, 2024, gross profit decreased $119.1 million, or 48.3%, to $127.3 million from $246.4 million for the three months ended March 31, 2023. The decrease in gross profit for the three months ended March 31, 2024 was due to lower revenue, partially offset by efficiencies in inventory management and cost savings from our Fuel for the Future initiatives. As a percentage of revenue, gross profit increased 220 basis points to 72.8% for the three months ended March 31, 2024 from 70.6% for the corresponding period in 2023. The increase in gross margin percentage was primarily due to efficiencies in inventory management and cost savings from Fuel for the Future initiatives, partially offset by increased shipping costs.

Current wording

Gross profit: Gross profit decreased $87.3 million, or 41.4%, to $123.4 million from $210.7 million for the three months ended June 30, 2024 from the corresponding period in 2023. The decrease in gross profit for the three months ended June 30, 2024 was due to lower revenue. As a percentage of revenue, gross profit increased 210 basis points to 73.2% for the three months ended June 30, 2024 from 71.1% for the corresponding period in 2023. Gross profit as a percentage of revenue was positively impacted by cost savings from our Fuel for the Future initiatives and efficiencies in inventory management. For the six months ended June 30, 2024, gross profit decreased $206.4 million, or 45.1%, to $250.7 million from $457.1 million for the six months ended June 30, 2023. The decrease in gross profit for the six months ended June 30, 2024 was due to lower revenue. As a percentage of revenue, gross profit increased 210 basis points to 73.0% for the six months ended June 30, 2024 from 70.9% for the corresponding period in 2023. Gross profit as a percentage of revenue was positively impacted by cost savings from our Fuel for the Future initiatives and efficiencies in inventory management.

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SG&A expenses for the three months ended March 31, 2024 was primarily due to decreased Coach compensation due to lower volumes and fewer active earning Coaches, partially offset by market research and investment costs related to medically supported weight loss and costs for our Company-led acquisition initiatives. As a percentage of revenue, SG&A expenses were 68.3% for the three months ended March 31, 2024 as compared to 55.3% for the corresponding period in 2023. SG&A expenses included research and development costs of $1.0 million for both the three months ended March 31, 2024 and 2023, in connection with the development of new products, programs and clinical research activities. The increase in SG&A expenses as a percentage of revenue for the three months ended March 31, 2024 was primarily due to market research and investment costs related to medically supported weight loss activities, the loss of leverage on fixed costs due to lower sales volumes when compared to the first quarter of 2023, and costs for our company led acquisition initiatives.

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Selling, general, and administrative: SG&A expenses were $131.3 million for the three months ended June 30, 2024, a decrease of $40.7 million, or 23.7%, as compared to $172.0 million from the corresponding period in 2023. SG&A expenses decreased for the three months ended June 30, 2024 primarily due to decreased Coach compensation on fewer active earning Coaches and lower sales volumes, partially offset by the loss of leverage on fixed costs due to lower sales volumes and supply chain optimization costs. The Company also incurred market research and investment costs related to medically supported weight loss, costs to exit hotel commitments for our annual OPTAVIA convention in future years, reflecting a change in strategy, and costs for our Company-led customer acquisition initiatives. As a percentage of revenue, SG&A expenses were 77.9% for the three months ended June 30, 2024 as compared to 58.1% for the corresponding period in 2023. SG&A expenses as a percentage of revenue increased for the three months ended June 30, 2024 primarily reflecting the loss of leverage on fixed costs due to lower sales volumes and supply chain optimization costs. SG&A expenses included research and development costs of $1.1 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively, in connection with the development of new products and plans, and clinical research activities. SG&A expenses were $250.7 million for the six months ended June 30, 2024, a decrease of $114.2 million, or 31.3%, as compared to $364.9 million from the corresponding period in 2023. SG&A expenses decreased for the six months ended June 30, 2024 primarily due to decreased Coach compensation on fewer active earning Coaches and lower sales volumes, partially offset by the loss of leverage on fixed costs due to lower sales volumes and supply chain optimization costs. The Company also incurred costs for our Company-led customer acquisition initiatives, and market research and investment costs related to medically supported weight loss. As a percentage of revenue, SG&A expenses were 73.0% for the six months ended June 30, 2024 as compared to 56.6% for the corresponding period in 2023 primarily reflecting the loss of leverage on fixed costs due to lower sales volumes and supply chain optimization costs. SG&A expenses included research and development costs of $2.1 million and $2.1 million for the six months ended June 30, 2024 and 2023, respectively, in connection with the development of new products and plans, and clinical research activities.

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Income from operations: For the three months ended March 31, 2024, income from operations decreased $45.6 million to $7.9 million from $53.5 million for the corresponding period in 2023 primarily as a result of decreased gross profit partially offset by decreased SG&A expenses. Income from operations as a percentage of revenue decreased to 4.5% for the three months ended March 31, 2024 from 15.3% for the corresponding period in 2023 due to the factors described above impacting revenue and SG&A expenses.

Current wording

Income (loss) from operations: For the three months ended June 30, 2024, the Company’s loss from operations was $7.9 million, a $46.6 million decrease from the $38.7 million income from operations for the corresponding period in 2023 primarily as a result of decreased gross profit partially offset by decreased SG&A expenses. For the three months ended June 30, 2024 the Company’s loss from operations as a percentage of revenue was 4.7% as compared to the Company’s income from operations as a percentage of revenue of 13.1% for the corresponding period in 2023, due to the factors described above impacting SG&A expenses, partially offset by the factors impacting gross profit. For the six months ended June 30, 2024, income from operations decreased $92.2 million to less than $0.1 million from $92.2 million for the corresponding period in 2023 primarily as a result of the factors described above impacting SG&A expenses, partially offset by the factors impacting gross profit. Income from operations as a percentage of revenue decreased to less than 0.1% for the six months ended June 30, 2024 from 14.3% for the corresponding period in 2023 due to the factors above impacting SG&A expenses, partially offset by the factors impacting gross profit.

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Provision for income taxes: For the three months ended March 31, 2024, the Company recorded $3.3 million in income tax expense, an effective tax rate of 28.2%, as compared to $13.4 million in income tax expense, an effective tax rate of 25.1%, for the three months ended March 31, 2023. The increase in the effective tax rate for the three months ended March 31, 2024 was primarily driven by an increase in the tax shortfall for stock compensation and the rate impact of research and development tax credits, partially offset by the decrease in the limitation for executive compensation and various other miscellaneous items.

Current wording

Provision (benefit) for income taxes: For the three months ended June 30, 2024, the Company recorded $2.5 million in income tax benefit, an effective tax rate of 23.4%, as compared to $8.8 million in income tax expense, an effective tax rate of 22.6%, for the three months ended June 30, 2023. The change in the effective tax rate for the three months ended June 30, 2024 was primarily driven by the net loss position in 2024 and the corresponding rate impact from the tax benefit for research and development tax credits, partially offset by the rate impact from the limitation for executive compensation. For the six months ended June 30, 2024, the Company recorded $0.8 million in income tax expense, an effective tax rate of 82.6%, as compared to $22.2 million in income tax expense, an effective tax rate of 24.0%, for the six months ended June 30, 2023. The increase in the effective tax rate for the six months ended June 30, 2024 was primarily driven by the impact of the tax shortfall for stock compensation, which was magnified by the near break-even pre-tax income position.

Previous wording

Non-GAAP adjusted income tax provision was $2.9 million for the three months ended March 31, 2024, an effective tax rate of 28.7% as compared to 25.1% for the corresponding period in 2023. “Non-GAAP Financial Measures” below for a reconciliation of each of non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted income tax provision was $3.6 million for the three months ended June 30, 2024, an effective tax rate of 26.2% as compared to 22.6% for the corresponding period in 2023. Non-GAAP adjusted income tax provision was $6.6 million for the six months ended June 30, 2024, an effective tax rate of 27.2%, as compared to 24.0% for the corresponding period in 2023. Refer to “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Previous wording

Net income: Net income was $8.3 million, or $0.76 per diluted share for the three months ended March 31, 2024 as compared to $40.0 million, or $3.67 per diluted share, for the three months ended March 31, 2023. The period-over-period changes were driven by the factors described above in the section titled “Income from operations.”

Current wording

Net income (loss): Net loss was $8.2 million, or $0.75 per diluted share for the three months ended June 30, 2024 as compared to net income of $30.3 million, or $2.77 per diluted share, for the three months ended June 30, 2023. Net income was $0.2 million, or $0.01 per diluted share for the six months ended June 30, 2024, as compared to $70.2 million, or $6.43 per diluted share for the six months ended June 30, 2023. The period-over-period changes were driven by the factors described above.

Previous wording

Non-GAAP adjusted net income was $7.2 million or $0.66 per diluted share for the three months ended March 31, 2024 as compared to $40.0 million, or $3.67 per diluted share, for the corresponding period in 2023. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted net income was $10.1 million or $0.92 per diluted share for the three months ended June 30, 2024 as compared to $2.77 per diluted share for the corresponding period in 2023. Non-GAAP adjusted net income was $17.5 million or $1.60 per diluted share for the six months ended June 30, 2024 as compared to $6.43 per diluted share for the corresponding period in 2023. Refer to “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Previous wording

In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures in this quarterly report, our quarterly earnings press release, and other public disclosures. The following GAAP financial measures have been presented on an as-adjusted basis: SG&A expenses, income from operations, other income (expense), provision for income taxes, net income, and diluted earnings per share. Each of these as-adjusted financial measures excludes the impact of certain amounts related to the LifeMD collaboration and unrealized gains on our investment in LifeMD common stock as further identified below and have not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below. These non-GAAP financial measures are not intended to replace GAAP financial measures.

Current wording

In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures in this quarterly report, our quarterly earnings press release, and other public disclosures. The following GAAP financial measures have been presented on an as-adjusted basis: Cost of sales, Gross profit, SG&A expenses, income (loss) from operations, other income (expense), provision (benefit) for income taxes, net income (loss), and diluted earnings (loss) per share. Each of these as-adjusted financial measures excludes the impact of certain amounts related to supply chain optimization and restructuring of external manufacturing agreements, costs to exit hotel commitments for our OPTAVIA convention in future years, unrealized gains or losses on our investment in LifeMD common stock, and the LifeMD collaboration as further identified below and have not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below. These non-GAAP financial measures are not intended to replace GAAP financial measures.

Previous wording

The Company had stockholders’ equity of $211.0 million and working capital of $142.4 million at March 31, 2024 as compared with $201.5 million and $131.7 million at December 31, 2023, respectively. The $9.5 million net increase in stockholders’ equity was primarily driven by net income for the three months ended March 31, 2024 of $8.3 million. The Company’s cash, cash equivalents, and investments increased from $150.0 million at December 31, 2023 to $156.4 million at March 31, 2024.

Current wording

The Company had stockholders’ equity of $205.3 million and working capital of $149.1 million at June 30, 2024 as compared with $201.5 million and $131.7 million at December 31, 2023, respectively. The $3.8 million net increase in stockholders’ equity was primarily driven by a $4.6 million increase in share-based compensation partially offset by $0.8 million in net shares repurchased for employee taxes. The Company’s cash, cash equivalents and investment securities increased from $150.0 million at December 31, 2023 to $163.5 million at June 30, 2024.

Previous wording

Net cash provided by operating activities decreased by $56.8 million to $7.3 million for the three months ended March 31, 2024 from $64.1 million for the three months ended March 31, 2023 primarily driven by a $31.7 million decrease in net income, a $13.6 million decrease related to changes in inventory balances, a $9.3 million decrease in income taxes, a $7.3 million decrease in prepaid expenses and other current assets, partially offset by a $6.0 million increase in accounts payable and accrued expenses We decreased our inventory purchases during the period ended March 31, 2024 to align with sales demand.

Current wording

Net cash provided by operating activities decreased by $86.9 million to $20.4 million for the six months ended June 30, 2024 from $107.2 million for the six months ended June 30, 2023. This was primarily driven by a $57.2 million decrease in net income excluding non-cash charges, a $35.0 million decrease related to a smaller inventory reduction in the period ending June 30, 2024 to align with sales demand, and a $5.5 million decrease resulting from higher prepaid expenses and other current assets, partially offset by a $12.4 million increase resulting from a smaller reduction in accounts payable and accrued expenses during the period.

Previous wording

Net cash used in investing activities was $2.8 million for the three months ended March 31, 2024 as compared to $2.1 million for the three months ended March 31, 2023.

Current wording

Net cash used in investing activities was $5.3 million for the six months ended June 30, 2024 as compared to $3.9 million for the six months ended June 30, 2023. The increase was primarily driven by a $1.5 million increase of net purchases of investment securities during the six months ended June 30, 2024.

Previous wording

Net cash used in financing activities decreased by $24.4 million to $1.5 million for the three months ended March 31, 2024 from $25.9 million for the three months ended March 31, 2023. This decrease was primarily due to an $18.5 million decrease in cash dividends paid to stockholders, a $3.6 million decrease in repurchases of the Company's common stock, and a $2.4 million decrease in net shares repurchased for employee taxes.

Current wording

Net cash used in financing activities decreased by $42.2 million to $1.5 million for the six months ended June 30, 2024 from $43.7 million for the six months ended June 30, 2023. This decrease was primarily due to a $36.3 million decrease in cash dividends paid to stockholders, a $3.6 million decrease in stock repurchases, and a $2.4 million decrease in net shares repurchased for employee taxes.

Previous wording

In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any, to be funded from operating cash flow and financing activities.

Current wording

In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements in both the short term and the long term, if any, to be funded from operating cash flow and financing activities.