Medifast, Inc. (MED) Q4 2022 Earnings Call Transcript

Medifast, Inc. (NYSE:MED) Q4 2022 Earnings Conference Call February 21, 2023 4:30 PM ET

Company Participants

Reed Anderson - Investor Relations, ICR, Inc.

Dan Chard - Chief Executive Officer

Jim Maloney - Chief Financial Officer

Conference Call Participants

Linda Bolton Weiser - D. A. Davidson & Co.

Operator

Good afternoon, and invited to nan Medifast Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. All participants will beryllium successful listen-only mode. [Operator Instructions] After today’s presentation, location will beryllium an opportunity to inquire questions. [Operator Instructions] Please note, this arena is being recorded.

I would now for illustration to move nan convention complete to Reed Anderson pinch ICR. Please spell ahead.

Reed Anderson

Good afternoon, and invited to Medifast’s 4th fourth 2022 net convention call. On nan telephone pinch maine coming are Dan Chard, Chairman and Chief Executive Officer; and Jim Maloney, Chief Financial Officer. By now, everyone should person entree to nan net merchandise for nan 4th ended December 31, 2022, and went retired this day astatine astir 4:05 p.m. Eastern Time. If you person not received nan release, it is disposable connected nan Investor Relations information of Medifast’s website astatine www.medifastinc.com. This telephone is being webcast, and a replay will besides beryllium disposable connected nan company’s website.

Before we begin, we would for illustration to punctual everyone that today’s prepared remarks incorporate forward-looking statements, and guidance whitethorn make further forward-looking statements successful consequence to your questions. The words believe, expect, expect and different akin expressions mostly place forward-looking statements. These statements do not guarantee early performance, and therefore, undue reliance should not beryllium placed upon them.

Actual results could disagree materially from those projected successful immoderate forward-looking statements. All of nan forward-looking statements contained herein speak only arsenic of nan day of this call. Medifast assumes nary responsibility to update immoderate forward-looking statements that whitethorn beryllium made successful today’s merchandise aliases call.

Additionally, successful an effort to supply investors pinch further accusation regarding results arsenic wished by GAAP, this telephone will disclose various non-GAAP financial measures. A reconciliation of each of nan non-GAAP financial measures to nan astir comparable GAAP financial measures is included successful nan net merchandise for nan 4th ended December 31, 2022 is shared connected nan company’s Investor Relations website. These non-GAAP financial measures are not intended to switch GAAP financial measures.

And pinch that, I would for illustration to move nan telephone complete to Medifast’s Chairman and Chief Executive Officer, Dan Chard.

Dan Chard

Thanks, Reed, and invited to nan telephone everyone. We’re grateful that you’re taking nan clip to beryllium pinch america today. On nan telephone pinch maine is Jim Maloney, Medifast’s Chief Financial Officer. I’ll supply immoderate discourse connected nan 4th fourth and afloat twelvemonth 2022 arsenic good arsenic immoderate item connected really we are continuing to create our business. Jim will past return you done nan specifics of our financials successful immoderate much detail.

Looking astatine nan 4th quarter, location are galore things to beryllium encouraged by arsenic we proceed to recalibrate and set to nan changing world macroeconomic situation and shifts successful user behaviour related to nan accelerated moving economical disruption that peaked successful Q2 of 2022 and impacted our business dynamic. Revenue was a small up of expectations successful ample portion driven by nan enhanced stableness that we person been capable to bring to customer retention rates, which person now returned to and stay astatine humanities levels.

We proceed to return steps to mitigate costs pressures, thrust efficiency, and build financial resilience successful our model. The 80 ground points of compression successful adjusted gross separator we knowledgeable successful Q4 was mostly driven by ostentation and partially offset by pricing changes and nan optimization of shipping costs. We expect nan value increases to person an further affirmative effect connected margins passim nan people of 2023.

We’re intimately managing our SG&A expenses, which decreased 420 ground points arsenic a percent of gross connected an adjusted ground driven by developments successful our soul labour and section operations related to some section compensation scheme optimization arsenic good arsenic section support automation. The number of progressive earning OPTAVIA Coaches was down against Q3 of 2022, but up compared to nan anterior twelvemonth play to 60,900 Coach productivity is down some sequentially and year-over-year. We expect to spot continued unit connected productivity done 2023, peculiarly successful nan first half, arsenic nan residual effects of nan behavioral shifts from past twelvemonth worked their measurement done nan yearly business cycle.

With customer retention levels having returned to normal and nan continued attraction connected managing our costs structure, our afloat attraction is connected executing a much rigorous attack to customer acquisition, which continues to beryllium pressured by changing customer purchasing behavior, and changes to nan societal media platforms our Coaches utilized to stock nan OPTAVIA programs pinch prospective customers.

We are presently implementing and processing initiatives that will alteration america to build connected nan momentum we person already seen successful retention levels by accelerating customer acquisition and improving nan existing tenure operation to return it to humanities normal ranges. We cognize that some Coaches and customers are much productive successful nan earlier stages of their OPTAVIA lifecycle, which is why achieving an optimal tenure operation has been and remains an important portion of our maturation strategy. There are really 3 elements to our attack erstwhile considering customer acquisition and tenure.

First, we activity to instrumentality programs that thief Coaches pull caller audiences to nan OPTAVIA program, bringing successful caller customers who are looking for Lifelong Transformation successful their wellness and wellness journey. Secondly, our Coaches activity successful business pinch these customers to guarantee that they execute their goals and to create a heavy and enduring engagement pinch OPTAVIA to guarantee semipermanent retention. Finally, we activity pinch our Coaches to return a information of those passionate caller customers and person them into Coaches, and build connected their ain enthusiasm to pull and prosecute caller customers themselves.

We’ve historically seen coagulated results from this 3-tiered approach, and while location are surely outer pressures impacting each of these areas astatine present, nan squad is moving to heighten each constituent to maximize effectiveness arsenic we move forward. Customer acquisition has been much challenging successful caller months pinch an upward displacement successful nan magnitude of clip that Coaches return to get each caller customer. Coaches proceed to walk nan aforesaid magnitude of clip connected this important activity, but nan adjusted acquisition complaint intends that Coaches are reaching and subscribing less caller customers per coach to nan OPTAVIA wellness and wellness plan.

We property these changes to a displacement successful customer behaviour related to nan evolving macro environment, arsenic good arsenic nan shifts and nan algorithmic exertion of societal media platforms, which person altered nan visibility of coach messages among prospective customers. Social scope is simply a perpetually changing target, and it’s captious that we are moving successful heavy business pinch nan section to thief coaches optimize their effectiveness successful nan space. Our teams are processing highly customized training programs to supply champion believe insights into each of nan cardinal platforms, and offering updates, tips and emerging trends arsenic we spot changes return spot successful nan technology.

By moving pinch nan section to empower our coaches to succeed, we’ll proceed to thief our connection trim done nan sound and scope much people. Separately, we besides request to proceed to return advantage of our ain exertion platforms specified arsenic our apps, wherever we power nan level and we’re capable to build an unfiltered nonstop relationship pinch our customers. We’re besides moving connected enhanced customer acquisition programs that tin thief america return acquisition rates to accepted levels.

Our astir caller activity began pinch our committed to wellness business program, which started connected December 26, and ran done nan extremity of January. This is an important driver focusing connected fostering alignment of our full coach web astir customer acquisition done nan creation of charismatic value points for some first and 2nd nutrient orders. The purpose is not conscionable to promote first clip OPTAVIA customers to motion up, but besides to reactivate past customers who person already had a affirmative acquisition pinch nan brand. It’s still excessively early to afloat construe nan results of nan perpetrate to Health Program, which we expect will play retired complete nan adjacent fewer quarters.

We’ve surely seen a important assistance and customer acquisition, and we were encouraged by nan number of customers discovering nan OPTAVIA programme for nan first time. We’ll besides proceed to return tactical opportunities to build caller imperishable customer acquisition incentives arsenic we spot opportunities successful nan field. An illustration would beryllium nan accelerator for each compensation scheme prize that we put successful spot astatine nan extremity of past twelvemonth to connection an inducement for Coaches to bring caller customers into nan OPTAVIA family. This prize is now portion of nan 2023 caller compensation building reflecting our ongoing attraction connected caller customer acquisition, successful summation to different important business building initiatives.

We judge that location are greenish shoots opening to look successful nan customer tenure operation arsenic a consequence of these initiatives, but it will return immoderate much clip for immoderate displacement to play retired afloat successful our numbers. Once we person successfully attracted a customer, we usage personalized coaching, enhanced wellness and wellness education, and effective integer devices to thrust engagement. Keeping customers engaged for longer, and ensuring that OPTAVIA becomes portion of each customer’s mundane life is simply a superior attraction for nan squad arsenic nan catalyst for reestablishing our customer and coach tenure, and enhancing early gross growth.

Optimizing our exertion is simply a captious constituent of this work. We proceed to activity to guarantee that coach messages trim done societal media noise, and we usage our ain platforms peculiarly OPTAVIA’s ain apps to alteration america to person a nonstop way to customers, some existing and future.

The activity coming retired of our exertion halfway successful Utah continues to move nan barroom connected our activity successful this area, and arsenic we proceed to prosecute and pass pinch coaches and customers done these platforms, we will trim nan effect of changes successful nan algorithms connected societal platforms. Customers who subordinate nan OPTAVIA programme coming shape early coach cohorts and these cohorts successful move thrust optimization of nan customer and coach tenure operation and alteration associated improvements successful ratio and productivity.

We presently person a number of coach improvement initiatives successful nan pipeline to incentivize existing coaches to thief newer customers connected their ain coaching journey, and expect to spot immoderate of these programs travel online successful nan first half of nan year, arsenic good arsenic passim nan remainder of 2023. Optimizing incentives and compensation scheme remains an important instrumentality successful our arsenal to thrust growth, retention and engagement. And we will proceed to accommodate and research complete nan upcoming months arsenic we look to grow our reach.

We are investing important clip and resources and cautiously learning from our existing and prospective customers, listening to what our coaches are proceeding and uncovering businesslike solutions to challenges arsenic good arsenic building programs that present connection, engagement and retention. We’re consistently adapting and focusing our efforts connected wherever we judge they will person nan astir impact, whether that’s a caller technology, pricing changes, optimizing nan efforts of coaches aliases different initiatives. All of this is activity aimed astatine building nan important momentum successful some acquisition and tenure, and nan programs that we are putting successful spot successful nan first half of 2023 will beryllium important drivers to reestablish our repeatable business rhythm.

We will proceed to guarantee that we support operational effectiveness crossed each areas of nan business, while leveraging our investments and elastic standard to present precocious rates of profitability moreover successful an inflationary environment. The spot of our operational level now enables america to attraction connected creating efficiencies successful respective areas including procurement, worth engineering, manufacturing and G&A. We are already seeing P&L effect from this activity and we expect much meaningful support successful early periods.

Over nan people of much than 6 years, we person developed OPTAVIA into a powerful transformational unit that engages customers and helps group alteration their lives for good. We person consistently shown an expertise to accommodate to changing circumstances and opportunities, and we person go stronger and much businesslike and effective arsenic a result. We demonstrated this erstwhile we changed our business exemplary successful 2017 and erstwhile we adapted during nan people of nan world COVID pandemic successful since 2020. We are building a business that we judge will beryllium tin of thriving successful immoderate economical environment, and while location whitethorn beryllium bumps successful nan roadworthy connected that journey, it’s a extremity that continues to motivate and thrust america arsenic a team.

Our highly personalized and unsocial attack to holistic wellness translator remains markedly differentiated successful nan marketplace. We person clinically proven plans that consistently present materially affirmative outcomes on pinch unprecedented levels of customer satisfaction. We recognized we don’t power each azygous variable, and that nan early situation could alteration conscionable arsenic quickly arsenic we saw successful Q2 of 2022. However, we person a clear grasp connected nan factors and triggers that we tin power and we are continuing to deploy them successful a measurement that tin thief america navigate done immoderate business turbulence.

We proceed to build a institution that tin thrive successful each macroeconomic conditions, not conscionable nan world arsenic it is today. That is really we thrust semipermanent maturation for each of our stakeholders. As we person emerged from nan world pandemic, location was a greater attraction than ever connected issues related to wellness and wellness, and obesity continues to beryllium astatine nan halfway of that. A caller study commissioned by Medifast and conducted by an independent investigation institution recovered that 70% of U.S. adults are wished not to fto their wellness and well-being falter successful 2023, pinch nan mostly already prioritizing it complete different areas of their lives, including profession and education. 57% of U.S. to adults specifically cited that they would walk much clip connected their wellness and well-being successful 2023.

With a receptive marketplace successful a highly effective business exemplary successful place, we stay assured successful our expertise to thrust engagement and make OPTAVIA progressively cardinal to nan wellness journeys of much group astir nan world. Part of our committedness to our ngo to toggle shape lives One Healthy Habit astatine a Time involves ensuring that we scope into nan communities successful which we unrecorded and activity to thrust alteration sloppy of nan socioeconomic inheritance of those involved. I’m proud of nan effect we person made to day done our firm societal work initiative, Healthy Habits For All, which advances our ngo by providing children and nether resourced communities pinch nan acquisition and entree basal to create patient habits.

We deed an important acquisition milestone pinch nan Healthy Habits for All curriculum, which has now been downloaded by educators successful each 50 states and Washington D.C., and which has impacted much than 30,000 students since it’s launched this past fall. Modeled aft nan company’s proprietary habits of wellness system, nan lessons’ equips students pinch nan skills, knowledge and assurance needed to build patient habits from a young age.

We besides accrued entree to nutritious nutrient done a continued business pinch a nationalist nonprofit, No Kid Hungry. We provided nan balanced of astir 13 cardinal patient meals to deserving kids. This year, we widen our scope and supported a organization and acquisition plot adjacent our Medifast Digital Innovation Center successful Utah that not only shows students really to turn their ain patient food, but besides gives them entree to farms and section gardens. Of course, there’s still much to beryllium done, some successful acquisition and successful nutrient access. Through some our firm and philanthropic efforts, we’re moving to thief break nan generational alteration of mediocre wellness and get group nan expertise to toggle shape their wellness and wellness destinies. That’s important work, and I americium proud of nan effect we are having.

Delivering against our ngo remains astatine nan bosom of each that we do, and we person a beardown guidance squad and worker guidelines that thief america to guarantee we proceed to make advancement against our important goals. We person consistently shown our expertise to execute affirmative outcomes successful challenging environments, and nan activity we person done complete nan people of nan past 6 months successful a difficult macroeconomic scenery is impervious of that. There is simply a awesome woody of activity to beryllium done and we request to activity arsenic a squad to guarantee that we will build heightened momentum arsenic we move done 2023 and into 2024.

At nan aforesaid time, nan basal building blocks of semipermanent maturation are successful place. I’m assurance successful our strategy and our expertise to execute and look guardant to sharing much of our advancement pinch you connected early calls.

With that, I’ll manus nan telephone complete to Medifast’s Chief Financial Officer, Jim Maloney.

Jim Maloney

Thank you, Dan. Good afternoon, everyone. Revenue successful nan 4th fourth of 2022 decreased 10.7% to $337.2 cardinal from $377.8 cardinal successful nan 4th fourth of 2021. We ended nan 4th pinch astir 60,900 progressive earning OPTAVIA Coaches, an summation of 1.8% from nan 4th fourth of 2021. Average gross per progressive earning OPTAVIA Coach for nan 4th fourth was $5,538, a year-over-year diminution of 12.4% driven by continued unit from past year’s disruption successful customer retention, continued softness successful customer acquisition, and nan unoptimized coach and customer tenure.

Gross profit decreased 16.1% to $233.6 cardinal reflecting little gross successful Coach productivity and gross profit separator declined 440 ground points to 69.3% chiefly owed to expenses associated pinch nan restructuring of outer manufacturing agreements to optimize our proviso concatenation for 2023. Excluding these onetime expenses connected a non-GAAP adjusted basis, gross profit decreased 11.7% to $245.8 cardinal successful gross profit separator decreased 80 ground points to 72.9%, chiefly reflecting ostentation outpacing pricing adjustments, partially offset by little shipping costs owed to reduced definitive shipping compared to nan anterior year.

SG&A expenses decreased 13.1% to $200.9 million, and were 170 ground points little arsenic a percent of revenue, chiefly reflecting little coach compensation expense, little soul labour expense, and section cognition efficiencies partially offset by expenses related to donations to support nan Ukrainian alleviation effort.

On a non-GAAP adjusted basis, which excludes Ukraine donations, SG&A decreased 16.8% to $192.5 million, and were 420 ground points little arsenic a percent of gross to 57.1%. Income from operations decreased 30.4% to $32.6 million, reflecting decreased gross profit partially offset by little SG&A.

On a non-GAAP adjusted basis, which excludes one-time expenses related to nan restructuring of outer manufacturing agreements, and Ukraine donations, income from operations accrued 13.7% to $53.3 million. As a percent of revenue, non-GAAP adjusted income from operations accrued 340 ground points from nan twelvemonth agone play to 15.8%.

The effective taxation complaint was 18.2% from nan 4th fourth of 2022 compared to 27.2% successful nan anterior year’s 4th quarter. The alteration successful nan effective taxation complaint was chiefly driven by an summation successful charitable contributions benefit, and a simplification successful nan limitation for executive compensation partially offset by a alteration successful banal compensation benefits. On a non-GAAP adjusted basis, nan effective taxation complaint successful nan 4th fourth was 23.5%.

Net income successful nan 4th fourth of 2022 was $26.5 million, aliases $2.41 per diluted share. On a non-GAAP adjusted basis, nett income accrued 19.4% year-over-year to $40.6 million, and EPS accrued 27.1% year-over-year to $3.70.

Additionally, connected December 8, nan company’s Board of Directors declared a quarterly rate dividend of $17.9 million, aliases $1.64 per share, which was paid connected February 7, 2023 to stockholders of grounds arsenic of December 20, 2022. This represents a 15.5% per stock summation compared to nan 4th fourth of nan anterior year.

Turning to our equilibrium expanse and rate flows. We judge our financial position remains beardown pinch $87.7 cardinal successful rate and rate equivalents and nary interest-bearing indebtedness arsenic of December 31, 2022. During nan twelvemonth ended December 31, 2022, our nett rate travel from operating activities was $194.6 million, an summation of 105.8% from nan twelvemonth agone period.

I will now move to our guidance for Q1 2023. As we person discussed, nan macroeconomic effect to our business has caused an unfavorable displacement successful customer acquisition since Q2 2022. Based connected this, we expect Q1 2023 gross successful nan scope of $300 cardinal to $320 million, and diluted EPS to beryllium successful nan scope of $1.75 to $2.40. Our guidance assumes a 26% to 27% effective taxation rate. Given nan quickly shifting macroeconomic sentiment, and really that is impacting our caller customer acquisition, we are not providing afloat twelvemonth 2023 guidance. We will periodically reassess our expertise to supply guidance, erstwhile we judge early capacity tin beryllium reasonably estimated.

Finally, we judge that on pinch our much than 60,000 progressive earning OPTAVIA Coaches, we will beryllium capable to navigate nan caller business situation successful nan coming quarters, and we are assured successful our semipermanent 15% maturation and 15% operating income targets.

With that, fto maine move nan telephone backmost to Dan.

Dan Chard

Thanks, Jim. In closing, we person built a robust business complete nan people of nan past 6 years, processing a coach-based exemplary and a transformational strategy that is simply a powerful unit for individual wellness and wellness alteration for coaches and customers crossed nan United States and astir nan world. We alteration lives for nan better, and we do it successful a unsocial and effective way. It’s a differentiated attack that stands retired successful nan marketplace, and provides genuinely personalized wellness journeys to individuals who person traditionally struggled to execute affirmative outcomes successful nan past.

Clearly, immoderate of nan changes we saw past twelvemonth person had and will proceed to person a residual effect connected our business arsenic they activity their measurement done our yearly business cycle. There’s overmuch activity to beryllium done to empower our coaches to execute nan champion imaginable outcomes, contempt immoderate of nan issues they face. We are processing and implementing important customer acquisition initiatives that will thief america thrust momentum and a return to humanities norms and tenure, and are moving difficult arsenic a squad to guarantee that we thrust incremental alteration to nan cardinal metrics that powerfulness our economical engine. I stay highly assured successful our expertise to reestablish our maturation hit complete nan people of nan coming months.

We are building a business that is tin of delivering coagulated capacity successful each economical environments, and we person an accomplished activity squad that has a beardown grounds of achieving affirmative results successful analyzable environments.

With that, I will move nan telephone complete to nan usability for questions.

Question-and-Answer Session

Operator

We will now statesman nan question-and-answer session. [Operator Instructions] Our first mobility is from Linda Bolton Weiser pinch D.A. Davidson. Please spell ahead.

Linda Bolton Weiser

Hi, bully afternoon. So I was wondering what peculiar metrics, aliases KPIs would you beryllium watching truthful that you would consciousness much comfortable to commencement giving yearly guidance again. So are you mostly conscionable watching caller customer maturation aliases coach productivity, aliases – I mean, what would make you consciousness much comfortable astir reinstating guidance connected an yearly basis? Thank you.

Dan Chard

Thanks, Linda. Yeah, I deliberation what we are looking astatine correct now is nan continued effect of what we saw past year, which was efficaciously a 15% simplification related to alteration successful retention successful our coach and customer base. So nan astir important metrics that we track, each but one, person returned humanities norms. So that’s an important portion of nan reply your question. So that intends customer retention is backmost to and is sustained astatine normal rates. Our customer restitution and co-satisfaction, which are a driver of repetition rates, are supporting that, and our customer to coach conversion, person besides returned to humanities normal rates.

So nan 1 last and has been nan astir elusive metric that continues to execute astatine little than humanities norms is related to our customer acquisition. And what we spot happening is partially because of nan effect of ostentation connected disposable income, and partially besides because of a alteration successful what we’re seeing successful much caller months, and immoderate of nan algorithmic changes successful our societal media platforms that our coaches use. We’re seeing that number person a batch of weight connected it.

So erstwhile we spot that return, we expect to beryllium capable to connection amended guidance. And what we’ve seen truthful far, which we are still very overmuch astatine nan opening of our – this portion of our travel of returning to operating successful a normal situation aliases making nan caller situation aliases our maturation environment. We’ve seen our attraction beryllium capable to commencement turning specifically to that 1 last metric. It’s that specifically that’s impacting our return to aliases slowing our return to patient coaching customer tenure mix. And it’s besides impacting nan velocity of our return to our target gross growth, and disrupting our expertise to efficaciously supply guidance. So that’s why nan disruption has been extended into this year, and that’s why our Q1 guidance reflects that continued diminution of our revenue.

Linda Bolton Weiser

Okay. Thank you. That’s helpful. So would you want to really spot a return to affirmative year-over-year caller customer growth? Or would you want to spot conscionable an betterment successful nan year-over-year decline?

Dan Chard

For this year, I’d opportunity we’re focused connected starting to spot nan turn, and nan year-over-year diminution starring to nan affirmative year-over-year growth. And we started astatine a shortage past year, because of nan nonaccomplishment of that 15%. And that shortage sewage wider arsenic nan situation for acquiring caller clients became much difficult, and because that 15% of clients we lost, usually a information of those would go coaches and would person turned that tenure. So those are benignant of nan headwinds we’re facing. So we’re – what we saw successful January was nan beginnings of our expertise to impact, but we still are closing that gap. That’s – yeah, betterment to nan year-over-year first, and past activity towards year-over-year growth.

Linda Bolton Weiser

So, I understand, are you saying nan caller customers were little down year-over-year successful January versus 4th quarter? Is that what you’re saying?

Dan Chard

Yeah, what we saw successful January was an betterment successful our tenure, which intends that we brought successful a higher number of customers. So that was comprised of some caller customers and besides customer, lapsed customers, who had not bought for nan past 6 months. So we saw that that number commencement to amended comparative to those we had lost.

Jim Maloney

And different measurement to span that, Linda, arsenic we mentioned during nan 2nd half of 2022, customer acquisition efforts were much difficult. So nan little customer acquisition successful nan 2nd half of 2022 is really impacting Q1, because simply location are conscionable little customers arsenic we entered 2023 than location were successful 2022 erstwhile we entered 2022. And, arsenic Dan mentioned successful nan prepared remarks, that nan Commit to Health program, we saw it being successful successful improving customer count successful January. It’s conscionable excessively early to show really successful that programme will beryllium until we move retired successful nan adjacent respective quarters.

Dan Chard

So here’s a way, Linda, to deliberation astir nan way up and this benignant of build connected Jim’s comments. So location are 3 things we’re focused connected correct now. Program is one, training is nan different and past improving our offer. So what you’ve seen america do truthful acold successful nan 3rd and 4th fourth of past twelvemonth is introduced programs, which were specifically focused connected providing coach and coach leader incentives astir bringing successful much clients. What you saw successful Q1, aliases nan January programme was a customer acquisition offer, which focused connected value for nan first month, truthful $75 disconnected nan first period of a premier program. And past an inducement done our rewards program, which provided an incremental 20% disconnected what is usually 10%, and that’s focused connected ensuring that we person repeat.

So arsenic we look towards nan remainder of nan year, what you’re going to spot nan programs focusing connected are continued, I’ll say, optimization of our customer – of our coach inducement structure, and besides a return to immoderate of nan programs that were pre-pandemic to build activity structure. So I deliberation astir that arsenic activity inducement programs for illustration nan travel that we utilized to have. So arsenic we activity done those programs, we deliberation that that will person a affirmative effect connected building backmost that customer guidelines that has been impacted.

The training that’s taking spot correct now is going done nan first quarter, and will proceed into nan 2nd 4th is fundamentally focused connected retraining, telephone it, 95% of each of our coach leaders. So that we see our coach leaders, executive board and above, and that will consequence successful astir 25% to 35% of each of our progressive coaches being retrained. And their retraining is focused connected operating successful nan caller environment, and managing and changing immoderate of their acquisition efforts, including moving towards a different attack connected really to leverage societal media, truthful leveraging it, but besides bringing backmost into nan operation immoderate of nan in-person activities.

The past point that we are focusing connected is nan offer. So I deliberation astir nan connection arsenic that first clip order. So we’re looking astatine ways to make that much value-added successful nan existent situation truthful that would see things for illustration nan continued improvement of nan OPTAVIA app. We’re looking astatine accelerating nan motorboat of immoderate of nan further Healthy Habit products. We postponed immoderate of those past twelvemonth arsenic we were facing this uncertain situation pinch inflation.

And past past point connected nan connection broadside is continuing to connection much support for description into nan Hispanic conception of nan United States. And, ultimately, we judge location is an opportunity for america to grow beyond nan U.S. borders into Latin America.

Linda Bolton Weiser

Okay. So we’re picking up from various coaches that were successful interaction pinch that there’s immoderate promotion – value promotion akin to nan January programme being offered successful February. We’re really seeing different promotions being offered by different coaches. So I’m funny tin coaches tally their ain value promotions? And if that’s nan case, really does that activity successful position of customers ordering straight connected your website? Just – what’s going connected retired location pinch – I thought everybody bought it 1 price. So really is it that different coaches tin beryllium moving different value promotions to different sets of customers?

Dan Chard

So nan reply is, yes, our coaches person nan expertise to tally their ain promotions. And it’s done done coordinated – well, done relationship and integration wrong our systems. So they telephone them wellness credits. It allows them to negociate promotions connected their own. And typically that’s done for caller customer acquisition efforts. So nan institution aliases corporately, we person really focused connected that programme that we talked astir 75% – aliases $75 disconnected nan first order, and past a 30% Premier Rewards for nan second. But, yes, location are coaches who tally their ain programs to supplement aliases successful immoderate cases to capable successful gaps are related to what their circumstantial cadence is successful position of customer acquisition.

Linda Bolton Weiser

So are they taking that – for their ain tally promotion are they taking that deed to their ain profit margin? Or are you helping them money by moving pinch individual coaches? Like, really is that working?

Dan Chard

They’re doing it from their ain profit margin. So they’re utilizing their ain committee building to money those things.

Linda Bolton Weiser

Okay.

Dan Chard

That’s conscionable to beryllium clear. That’s thing has been accordant for galore years. We typically partner pinch coach leaders talk about, if it’s a – successful this case, a value promotion, we get portion of nan measurement there. They get nan remainder of nan measurement location and we target circumstantial different levels of value promotions together. But – truthful that’s really what you’re seeing.

Linda Bolton Weiser

Okay. So, is location immoderate measurement you tin benignant of springiness america immoderate idea, immoderate metrics aliases information points astir nan different profit margins successful 2023? So, I would presume gross separator would beryllium down sequentially successful nan first quarter, because of nan January promotion, but past what should we see? Should we spot further diminution aliases stabilization? Or tin you springiness immoderate cadence of really nan gross margins should advancement done nan year?

Jim Maloney

Yeah, it’s going to beryllium difficult to talk astir nan year. But for Q1 specifically, we’re expecting year-over-year to gross separator to beryllium impacted successful 2 ways: 1 is nan programme that you conscionable mentioned, nan Commit to Health programme that will person a diminution successful gross separator effect to it, because that is affects price; and secondly, we will suffer leverage pinch nan little measurement successful Q1 versus Q1 of past year. But we do expect successful nan long-term, Linda, that there’s capable programs successful spot that we person internally to get backmost to 15% operating income.

We’re looking astatine procurement programs, we’re besides looking astatine worth engineering programs, and arsenic Dan mentioned, G&A programs. So, for nan G&A programs, conscionable to springiness you an illustration of that would beryllium automation of our customer service, and you’re starting to spot that really past successful 2022. So that’s why I’m assured that we tin get backmost to 15% aliases that operating target is because we conscionable achieved it successful Q4. So arsenic agelong arsenic we person nan leverage successful sales, 15% operating income separator successful nan semipermanent is achievable.

Linda Bolton Weiser

Okay. And successful position of these different procurement programs, and worth engineering and each that, is location immoderate measurement to quantify for illustration costs savings that you would expect successful 2023? Or are these multiple-year programs you can’t really put a digit connected nan 2023 effect?

Jim Maloney

Yeah, they are aggregate twelvemonth programs. We are targeting a gross magnitude betwixt 300 to 400 ground points successful nan long-term. So it’s going to beryllium aggregate years. So, I would opportunity that you could almost deliberation of it arsenic you cognize 50% of nan costs savings will beryllium wrong G&A and 50% of nan costs savings successful nan semipermanent will beryllium wrong gross margin.

Linda Bolton Weiser

Okay. Thank you. And then, do you person a CapEx number for almanac 2022?

Jim Maloney

Yeah, nan CapEx number for 2022 was astir $16 million.

Linda Bolton Weiser

And then, do you deliberation that will beryllium higher successful 2023 aliases astir nan same? Or what do you deliberation astir that?

Jim Maloney

Yeah. In 2023, we are seeing that it’s astir nan aforesaid expectation. We’re expecting that for 2023 to beryllium astir nan aforesaid arsenic 2022. So nan nonstop number for 2022 was $16,681 million.

Linda Bolton Weiser

Okay. And then, erstwhile we deliberation astir your dividend, I mean, this – arsenic you say, you’re unsure astir nan macro environment. And there’s moreover this rumor – this is simply a full abstracted question, but there’s immoderate narcotics precocious that person been getting immoderate publicity that person been helping group pinch weight problems, particularly a very obese people, Wegovy and Mounjaro, these are narcotics that are retired there. So there’s a batch of things that you’re unsure of. How would you deliberation astir your dividend benignant of going forward? Does that constituent to benignant of little dividend increases? And to what grade do you usage – for illustration are you consenting to put indebtedness connected your equilibrium expanse successful bid to salary your dividend? Or would you alternatively salary backmost nan dividend to sphere nan equilibrium sheet? What are you reasoning astir that?

Jim Maloney

Yeah. So erstwhile you look astatine nan full superior allocation, I’ll telephone it, a programme for 2023 and beyond. Our scheme is to proceed to put successful integrated growth, support aliases proceed to turn nan dividend past consistently use costs to banal repurchases. So immoderate excess funds, we would beryllium backing done banal repurchases. But we do scheme connected maintaining a blimpish equilibrium sheet. We would beryllium consenting to do a debased magnitude of leverage.

Linda Bolton Weiser

Okay. And past what astir – conscionable follow-on thoughts, Dan, possibly connected these narcotics that are retired there. And it seems for illustration nan full a batch of weight nonaccomplishment companies are having difficulty? And I cognize you’re not conscionable weight loss, you’re wellness, but it seems for illustration everyone’s having problems. Do you deliberation nan narcotics are affecting your business astatine all?

Dan Chard

Yeah, we don’t get a batch of comments from our coaches astir nan drugs. But, certainly, it’s thing that we’re watching very closely. I deliberation arsenic benignant of concerning to america aliases not concerning, but arsenic benignant of generating our – aliases grabbing our attraction is nan number of companies that are offering coaching. So that’s a halfway constituent is becoming much and much common. There are besides a batch much companies who are talking astir processing patient habits.

And so, I think, those 3 things together and immoderate players that are coming successful astatine nan precocious and debased extremity of nan spectrum arsenic agelong successful position of pricing spectrum, but besides more, I’ll say, developed technology, each those things are things that we’re looking astatine and are very alert of. I’m not judge precisely wherever nan narcotics are going to go, I think, there’s a small spot of contention that will benignant of play retired complete nan upcoming months. There was an article successful The Wall Street Journal astir nan deficiency of oversight and regularisation astir nan advertising. So, I think, there’s going to beryllium a small spot of benignant of correction, I think, successful that market. But, yes, we’re watching them closely. But astatine this point, our coaches aren’t seeing a batch of effect yet.

Linda Bolton Weiser

Okay. Thank you very much. I admit it.

Dan Chard

Thanks, Linda.

Operator

This concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Dan Chard for immoderate closing remarks.

Dan Chard

Well, fto maine reason by saying acknowledgment for your questions and for joining america successful nan telephone today. As you’ve heard during nan people of nan call, we person an important ngo astatine Medifast pinch our committedness to Lifelong Transformation, One Healthy Habit astatine a Time. We stay highly dedicated to that mission, and while astatine nan aforesaid clip creating stockholder worth for nan semipermanent sloppy of what other is happening successful nan economy. That’s what we’re focused connected today, and that’s what we’ll beryllium focused connected for nan 4th ahead. Thank you for joining.

Operator

The convention is now concluded. Thank you for attending today’s presentation. You whitethorn now disconnect.