MEDIFAST INC

Previous 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.

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 development and widespread consumer adoption of GLP-1 medications has fundamentally shifted the way many individuals think about weight management and health. In response to these developments the Company 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 force 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 30,000 independent active earning coaches providing consistent and effective support to customers on their weight loss journeys.

Previous 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.

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. We are developing distinct OPTAVIA coach supported program offerings tailored to meet the unique needs of three specific customer segments:

Previous 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.

Current wording

Through the Company’s previously announced collaboration with LifeMD, 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. 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 have developed an integrated offering with the goal of creating a comprehensive and seamless solution for customers who desire to use medications and OPTAVIA’s lifestyle 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 certain 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.

Previous 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.

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. Although the number of OPTAVIA coaches has recently declined, they 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 previous 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.

Previous wording

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.

Current wording

Geo-political concerns and certain economic challenges including the impact of inflationary pressures have caused macroeconomic uncertainty and volatility in markets where we, our suppliers and our OPTAVIA coaches operate.

Previous 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.

Current wording

We are exposed to market risks from changes in commodity or other raw material prices. Inflation could impact our cost structure and put pressure on consumer spending. Increases in commodity prices or food costs, including as a result of inflationary pressures, could affect the global and U.S. economies and could also adversely impact our business, financial

Previous wording

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.

Current wording

In response to worsening macroeconomic conditions, the Company may take further actions that alter its business operations that Management determines to be in the best interests of the Company’s employees, OPTAVIA coaches, and customers, such as evaluating our operational footprint or taking incremental pricing actions to offset supply chain costs and inflationary pressures.

Previous 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.

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, medical weight-loss solutions, other 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.

Previous wording

Beginning in Q3 2022, we began to see a downward trend in the number of active earning Coaches, driven by a decline in customers and attributable to changing social media algorithms and inflationary pressures on consumer spending. Additionally, the downward trend’s decline became sharper beginning in Q2 2023 due to the increase prevalence and adoption of GLP-1 medications and increased pressures on customer acquisition. We believe that, with continued pressures on customer acquisition, this downward trend in the number of active earning Coaches will continue in the short-term.

Current wording

Beginning in Q3 2022, we began to see a downward trend in the number of active earning OPTAVIA coaches, driven by a decline in customers and attributable to changing social media algorithms and inflationary pressures on consumer spending. Additionally, the trend’s downward decline became sharper beginning in Q2 2023 due to the increased prevalence and adoption of GLP-1 medications and increased pressures on customer acquisition. We believe that, with continued pressures on customer acquisition, this downward trend in the number of active earning coaches will continue in the short-term.

Previous wording

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.

Current wording

These macroeconomic uncertainties and increasing adoption of medical weight loss solutions 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.

Previous wording

Through an expected investment of approximately $25 million in Company-led marketing efforts in 2024, we are committed to driving growth and enhancing brand visibility while highlighting our holistic offer. This high-profile national campaign aims to elevate OPTAVIA brand awareness, foster engagement and drive customer conversion. With a multi-phase, omnichannel approach, the campaign will introduce new consumer and Coach-facing branding and visuals, and elevate the website, social and digital experience.

Current wording

Areas of investment include executing our new marketing campaign as well as cultivating new customers through the Company’s collaboration with LifeMD. Through an expected investment of approximately $20 to $25 million in Company-led marketing efforts in 2024, we are committed to driving growth and enhancing brand visibility while highlighting our holistic offer. We are trialing and adjusting our activities to maximize breakthrough, and are optimizing spending dependent on whether we expect to see a positive return on incremental expenditures. This high-profile national campaign aims to elevate OPTAVIA brand awareness, foster engagement and drive customer conversion. With a multi-phase, omnichannel approach, the campaign is introducing new consumer and coach-facing branding and visuals, and elevate the website, social and digital experience. The Company incurred approximately $16.4 million in advertising expenses for the nine months ended September 30, 2024.

Previous wording

We plan to ramp up our investment in the second half of 2024 and form the foundation of the Company’s strategy to return to growth, broadening and deepening our acquisition channels. This aligns with our three strategic growth pillars – robust marketing initiatives, coaching network expansion and strategic collaboration with LifeMD – to empower individuals on their journey to optimal health and wellbeing.

Current wording

We plan to continue our investment through the remainder of 2024 and into 2025, and form the foundation of the Company’s strategy to return to growth, broadening and deepening our acquisition channels. This aligns with our three strategic growth pillars – robust marketing initiatives, coaching network expansion and strategic collaboration with LifeMD – to empower individuals on their journey to optimal health and wellbeing.

Previous wording

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.

Current wording

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. Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the 2023 Form 10-K. There were no significant changes in our critical estimates or policies during the first nine months of 2024.

Previous wording

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

Current wording

Our product sales accounted for approximately 97% and 98% of our revenues for the three months ended September 30, 2024 and 2023, respectively, and approximately 97% for each of the nine months ended September 30, 2024 and 2023.

Previous wording

The following tables reflect our income statements (in thousands, except percentages):

Current wording

The following tables reflect our statements of operations (in thousands, except percentages):

Previous 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.

Current wording

Revenue: Revenue decreased $95.7 million, or 40.6%, to $140.2 million for the three months ended September 30, 2024 from $235.9 million for the three months ended September 30, 2023. The decline in revenue for the three months ended September 30, 2024 was primarily driven by a decrease in the number of active earning OPTAVIA coaches to 30,000 as of September 30, 2024, a 36.3% decrease from 47,100 as of September 30, 2023 and the decline in the productivity per active earning OPTAVIA coach. Revenue decreased $397.6 million, or 45.1%, to $483.5 million for the nine months ended September 30, 2024 from $881.0 million for the nine months ended September 30, 2023. The decline in revenue for the nine months ended September 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 $4,672 for the three months ended September 30, 2024, a 6.7% decrease compared to $5,008 for the three months ended September 30, 2023. The quarterly average revenue per active earning OPTAVIA coach was $4,754 for the nine months ended September 30, 2024, a 14.3% decrease compared to $5,545 for thenine months ended September 30, 2023. The decrease in productivity per active earning OPTAVIA coach for the three months ended September 30, 2024 and nine months ended September 30, 2024 was driven by continued pressure on customer acquisition.

Previous wording

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.

Current wording

Cost of sales: Cost of sales decreased $24.0 million, or 41.0%, to $34.5 million from $58.5 million for the three months ended September 30, 2024 from the corresponding period in 2023. The decrease in cost of sales for the three months ended September 30, 2024 was primarily driven by decreased volumes. Cost of sales decreased $119.5 million, or 48.5%, to $127.1 million from $246.6 million for the nine months ended September 30, 2024. The decrease in cost of sales for the nine months ended September 30, 2024 was primarily driven by approximately $105.8 million attributable to decreased volumes and $10.6 million in efficiencies in inventory management.

Previous wording

Non-GAAP adjusted cost of sales were $42.5 million for the three months ended June 30, 2024, a decrease of $42.9 million, or 50.2%, as compared to $85.5 million from the corresponding period in 2023. Non-GAAP adjusted cost of sales were $90.0 million for the six months ended June 30, 2024, a decrease of $98.1 million, or 52.2%, as compared to $188.1 million for the corresponding period in 2023. Non-GAAP adjusted cost of sales excludes expenses in connection with the Company’s restructuring of external manufacturing agreements. Refer to the “Non-GAAP Financial Measures” section below for a reconciliation of each of non-GAAP financial measure to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted cost of sales were $34.5 million for the three months ended September 30, 2024, a decrease of $24.0 million, or 41.0%, as compared to $58.5 million from the corresponding period in 2023. Non-GAAP adjusted cost of sales were $124.5 million for the nine months ended September 30, 2024, a decrease of $122.1 million, or 49.5%, as compared to $246.6 million for the corresponding period in 2023. Non-GAAP adjusted cost of sales excludes expenses in connection with the

Previous 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.

Current wording

Gross profit: Gross profit decreased $71.7 million, or 40.4%, to $105.7 million from $177.4 million for the three months ended September 30, 2024 from the corresponding period in 2023. The decrease in gross profit for the three months ended September 30, 2024 was due to lower revenue. As a percentage of revenue, gross profit increased 20 basis points to 75.4% for the three months ended September 30, 2024 from 75.2% for the corresponding period in 2023. For the nine months ended September 30, 2024, gross profit decreased $278.1 million, or 43.8%, to $356.4 million from $634.5 million for the nine months ended September 30, 2023. The decrease in gross profit for the nine months ended September 30, 2024 was due to lower revenue. As a percentage of revenue, gross profit increased 170 basis points to 73.7% for the nine months ended September 30, 2024 from 72.0% for the corresponding period in 2023. Gross profit as a percentage of revenue was positively impacted by efficiencies in inventory management.

Previous wording

Non-GAAP adjusted gross profit was $126.0 million for the three months ended June 30, 2024, a decrease of $84.7 million, or 40.2%, as compared to $210.7 million from the corresponding period in 2023. Non-GAAP adjusted gross profit margin increased 370 basis points to 74.8% from 71.1% for the corresponding period in 2023. Non-GAAP adjusted gross profit was $253.3 million for the six months ended June 30, 2024, a decrease of $203.8 million, or 44.6%, as compared to $457.1 million for the corresponding period in 2023. Non-GAAP adjusted gross profit margin increased 290 basis points to 73.8% for the six months ended June 30, 2024 from 70.9% for the corresponding period in 2023. Refer to the “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted gross profit was equal to GAAP gross profit for the three months ended September 30, 2024 and the three months ended September 30, 2023. Non-GAAP adjusted gross profit was $359.0 million for the nine months ended September 30, 2024, a decrease of $275.5 million, or 43.4%, as compared to $634.5 million for the corresponding period in 2023. Non-GAAP adjusted gross profit margin increased 220 basis points to 74.3% for the nine months ended September 30, 2024 from 72.0% for the corresponding period in 2023. Refer to the “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Previous wording

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.

Current wording

Selling, general, and administrative (“SG&A”): SG&A expenses were $103.6 million for the three months ended September 30, 2024, a decrease of $48.3 million, or 31.8%, as compared to $151.9 million from the corresponding period in 2023. SG&A expenses decreased for the three months ended September 30, 2024 primarily due to a $38.2 million decrease in OPTAVIA coach compensation on fewer active earning coaches and lower volumes and $5.0 million of reduced costs for coach-related events, including the annual OPTAVIA convention. As a percentage of revenue, SG&A expenses were 73.9% for the three months ended September 30, 2024 as compared to 64.4% for the corresponding period in 2023. SG&A expenses as a percentage of revenue increased for the three months ended September 30, 2024 primarily reflecting approximately 590 basis points of costs for our Company-led customer acquisition initiative and 340 basis points attributable to the loss of leverage on fixed costs due to lower sales volumes. Customer-led customer acquisition initiatives are included within the Advertising Expense caption of Footnote 1 to the Condensed Consolidated Financial Statements. SG&A expenses included research and development costs of $1.1 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively, in connection with the development of new products and plans, and clinical research activities. SG&A expenses were $354.2 million for the nine months ended September 30, 2024, a decrease of $162.5 million, or 31.5%, as compared to $516.8 million from the corresponding period in 2023. SG&A expenses decreased for the nine months ended September 30, 2024 primarily due to an approximately $161.2 million decrease in OPTAVIA coach compensation on fewer active earning coaches and lower volumes and an $8.2 million decrease in credit card fees, partially offset by $16.4 million of Company-led customer acquisition initiatives and $12.5 million of supply chain optimization costs. As a percentage of revenue, SG&A expenses were 73.3% for the nine months ended September 30, 2024 as compared to 58.7% for the corresponding period in 2023 primarily reflecting approximately 340 basis points of loss of leverage on fixed costs due to lower sales volumes, 340 basis points of costs incurred for our Company-led customer acquisition initiatives, and 260 basis points for supply chain optimization costs. SG&A expenses included research and development costs of $3.3 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively, in connection with the development of new products and plans, and clinical research activities.

Previous wording

Non-GAAP adjusted SG&A expenses were $113.8 million for the three months ended June 30, 2024, a decrease of $58.2 million, or 33.8%, as compared to $172.0 million from the corresponding period in 2023. Non-GAAP adjusted SG&A expenses were $231.8 million for the six months ended June 30, 2024, a decrease of $133.1 million, or 36.5%, as compared to $364.9 million from the corresponding period in 2023. Non-GAAP adjusted SG&A excludes expenses related to the Company’s supply chain optimization costs, costs to exit hotel commitments for our annual OPTAVIA convention in future years, reflecting a change in strategy, and costs for its collaboration with LifeMD. Refer to “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted SG&A expenses were $101.9 million for the three months ended September 30, 2024, a decrease of $50.0 million, or 32.9%, as compared to $151.9 million from the corresponding period in 2023. Non-GAAP adjusted SG&A expenses were $333.7 million for the nine months ended September 30, 2024, a decrease of $183.0 million, or 35.4%, as compared to $516.8 million from the corresponding period in 2023. Non-GAAP adjusted SG&A excludes expenses related to the Company’s supply chain optimization costs, costs to exit hotel commitments for the Company’s annual OPTAVIA convention in future years, reflecting a change in strategy, and costs for the collaboration with LifeMD. 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

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.

Current wording

Income from operations: For the three months ended September 30, 2024, the Company’s income from operations was $2.1 million, a $23.4 million decrease from the $25.5 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 September 30, 2024 the Company’s income from operations as a percentage of revenue was 1.5% as compared to the Company’s income from operations as a percentage of revenue of 10.8% 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 nine months ended September 30,

Previous wording

Non-GAAP adjusted income from operations was $12.2 million for the three months ended June 30, 2024, a decrease of $26.5 million, or 68.4%, as compared to $38.7 million from the corresponding period in 2023. Non-GAAP adjusted income from operations as a percentage of revenue was 7.3% for the three months ended June 30, 2024, a decrease of 580 basis points from 13.1% for the corresponding period in the prior year Non-GAAP adjusted income from operations was $21.5 million for the six months ended June 30, 2024, a decrease of $70.7 million, or 76.7%, as compared to $92.2 million from the corresponding period in 2023. Non-GAAP adjusted income from operations as a percentage of revenue was 6.3% for the six months ended June 30, 2024, a decrease of 800 basis points from 14.3% for the corresponding period in the prior year. Refer to “Non-GAAP Financial Measures” section below for a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted income from operations was $3.8 million for the three months ended September 30, 2024, a decrease of $21.8 million, or 85.3%, as compared to $25.5 million from the corresponding period in 2023. Non-GAAP adjusted income from operations as a percentage of revenue was 2.7% for the three months ended September 30, 2024, a decrease of 810 basis points from 10.8% for the corresponding period in the prior year Non-GAAP adjusted income from operations was $25.3 million for the nine months ended September 30, 2024, a decrease of $92.5 million, or 78.6%, as compared to $117.7 million from the corresponding period in 2023. Non-GAAP adjusted income from operations as a percentage of revenue was 5.2% for the nine months ended September 30, 2024, a decrease of 810 basis points from 13.4% for the corresponding period in the prior year. 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

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.

Current wording

Provision for income taxes: For the three months ended September 30, 2024, the Company recorded $0.4 million in income tax expense, an effective tax rate of 28.5%, as compared to $3.4 million, an effective tax rate of 12.9%, for the three months ended September 30, 2023. The change in the effective tax rate for the three months ended September 30, 2024 was primarily driven by a decrease in the tax benefit for donations of inventory compared to 2023. For the nine months ended September 30, 2024, the Company recorded $1.2 million in income tax expense, an effective tax rate of 48.6%, as compared to $25.6 million, an effective tax rate of 21.5%, for the nine months ended September 30, 2023. The increase in the effective tax rate for the nine months ended September 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 in the current year.

Previous 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.

Current wording

Non-GAAP adjusted income tax provision was $1.4 million for the three months ended September 30, 2024, an effective tax rate of 26.0% as compared to 12.9% for the corresponding period in 2023. Non-GAAP adjusted income tax provision was $7.9 million for the nine months ended September 30, 2024, an effective tax rate of 27.0%, as compared to 21.5% 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 (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.

Current wording

Net income: Net income was $1.1 million, or $0.10 per diluted share for the three months ended September 30, 2024 as compared $23.1 million, or $2.12 per diluted share, for the three months ended September 30, 2023. Net income was $1.3 million, or $0.12 per diluted share for the nine months ended September 30, 2024, as compared to $93.4 million, or $8.55 per diluted share for the nine months ended September 30, 2023. The period-over-period changes were driven by the factors described above.

Previous 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.

Current wording

Non-GAAP adjusted net income was $3.9 million or $0.35 per diluted share for the three months ended September 30, 2024 as compared to $2.12 per diluted share for the corresponding period in 2023. Non-GAAP adjusted net income was $21.4 million or $1.95 per diluted share for the nine months ended September 30, 2024 as compared to $8.55 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: 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.

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 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 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 $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.

Current wording

The Company had stockholders’ equity of $207.3 million and working capital of $152.6 million at September 30, 2024 as compared with $201.5 million and $131.7 million at December 31, 2023, respectively. The $5.9 million net increase in stockholders’ equity was primarily driven by a $5.2 million increase in share-based compensation and $1.1 million of net income for the period, 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 $170.0 million at September 30, 2024.

Previous 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.

Current wording

Net cash provided by operating activities decreased by $107.7 million to $29.4 million for the nine months ended September 30, 2024 from $137.1 million for the nine months ended September 30, 2023. This was primarily driven by a $73.3 million decrease in net income excluding non-cash charges, a $46.1 million decrease related to a smaller inventory reduction in the period ending September 30, 2024 to align with sales demand, and a $4.0 million decrease resulting from lower prepaid expenses and other current assets, partially offset by a $11.6 million increase resulting from a smaller reduction in accounts payable and accrued expenses during the period, and a $4.6 million increase resulting from lower other assets.

Previous 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.

Current wording

Net cash used in investing activities was $7.1 million for the nine months ended September 30, 2024 as compared to $50.3 million for the nine months ended September 30, 2023. The decrease was primarily driven by investments purchased during the nine months ended September 30, 2023 resulting in a $42.9 million decrease of net purchases of investment securities during the nine months ended September 30, 2024.

Previous 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.

Current wording

Net cash used in financing activities decreased by $60.4 million to $1.5 million for the nine months ended September 30, 2024 from $61.9 million for the nine months ended September 30, 2023. This decrease was primarily due to a $54.3 million decrease in cash dividends paid to stockholders, a $3.6 million decrease in stock repurchases, and a $2.5 million decrease in net shares repurchased for employee taxes.