Feb. 20, 2024
Medifast reported full-year and Q4 results on February 20, 2023. 2023 revenues came in at $1.07 billion. The company employed 41,100 active earning Optavia health coaches, who had quarterly earnings of $4,648 (or $18,592 on an annual rate).
Management said that: “We are realigning our business to respond to the evolving dynamics of the weight loss industry and to aggressively execute on bold initiatives to transform our business model,” said Dan Chard, Chairman & CEO of Medifast. “We are broadening our customer acquisition activities significantly, launching a broad-based national marketing effort and leaning into the medically-supported weight loss market through our collaboration with LifeMD.” Chard continued, “This remains a challenging market, and it will take time to navigate the transformational path that we are on.”
The average revenue per active earning OPTAVIA Coach was $4,648, compared to $5,538 for the fourth quarter last year, a decline of 16.1%, primarily driven by continued pressure on customer acquisition. The total number of active earning OPTAVIA Coaches decreased 32.5% to 41,100 compared to 60,900 for the fourth quarter of 2022.
The company’s gross profit as a percentage of revenue was 74.0% compared to 69.3% in the fourth quarter of 2022.
For the fiscal year ended December 31, 2023, revenue decreased 32.9% to $1.1 billion compared to revenue of $1.6 billion in 2022.
Net income for 2023 was $99.4 million, or $9.10 per diluted share. This compares to 2022 net income of $143.6 million.
The company expects first quarter 2024 revenue to be in the range of $155 million to $175 million.
Conference Call Information:
Management reported that the full integration with LifeMD, for medical weight loss clients taking obesity drugs is expected by mid-year, and the company will start seeing the impact of new customers and revenues late in 2024 and into 2025. The company has taken measures to cut costs, one action being the elimination of the company dividend. It is redirecting these cost savings into a $20-30 million company-wide marketing campaign (in addition to coaches marketing efforts). It’s not clear whether LifeMD will be spending additional amounts to promote the alliance. Management says that 50% of LifeMD’s clients are looking for support like that offered by Optavia coaches (a good thing). Management also claims that their sports nutrition line should help people on obesity drugs to maintain muscle mass. Manage says that they expect a lower average order size for customers this year.
Marketdata/DietBusinessWatch Commentary:
We understand that the integration with LifeMD will take some time. That’s to be expected. However, we disagree with the decision to spend only $20-30 million this year on marketing. That’s way too low, in our opinion, to effectively compete with the spending by Weight Watchers, NutriSystem and Noom. WW and NutriSystem EACH spend north of $200 million per year on advertising/marketing. Medifast has historically been stingy with advertising, with no national ad campaign. It’s time to wake up to reality and increase the exposure and brand name recognition, now that it’s a billion dollar company. $30 million represents just 2.8% of the firm’s 2023 sales! The ratio for the weight loss market should be at least 10-15% of sales. Marketdata thinks that the firm is being too conservative. One thing we’ve learned by tracking this market over 35 years since 1989 is that advertising drives demand in this business. If you don’t advertise enough, you are nearly invisible to the dieter/consumer.
And, why wait until the end of Q2 to start that marketing spend? The “diet season” will be mostly over by the end of June. The company marketing campaign should be in full force NOW, and not directed just at those using the weight loss drugs program but to acquire non-medical customers. In addition, there was no mention in the conference call about expansion to non-U.S. markets. Shouldn’t that also be a priority to grow sales? Will the company offer the medical option in other markets such as Mexico?
Company guidance of only $155-$175 million for Q1 2024 seems very low to us. That’s a run rate of only $700 million for the year. Q1 is usually the strongest quarter of the year for diet companies.