Q3 2023 Medifast Inc Earnings Call
Greetings and welcome to the Medifast third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host Steven Zenker, Vice President of Investor Relations you may begin.
Good afternoon, and welcome to Medifast third quarter 2023 earnings Conference call.
On the call with me today are Dan Chard, Chairman, and Chief Executive Officer, and Jim Maloney, Chief Financial Officer.
By now everyone should have access to the earnings release for the quarter ended September 32023 that went out this afternoon at approximately 405 P M Eastern time.
If you have not received the release, it's available on the Investor Relations portion of Medifast website at Www Dot Medifast, Inc. Dot com.
This call is being webcast and a replay will also be available on the company's website.
Before we begin we would like to remind everyone that todays prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions.
The words believe expect anticipate and other similar expressions generally identify forward looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed on them.
Actual results could differ materially from those projected in any forward looking statements.
All of the forward looking statements contained herein speak only as of the date of this call.
Medifast assumes no obligation to update any forward looking statements that may be made in today's release or call.
And with that I would like to turn the call over to Medifast, Chairman and Chief Executive Officer, Dan Chard.
Thanks, Steve.
Thanks to all of you for joining us on the call with me today is Jim Maloney manifest Chief Financial Officer.
I'll take a few minutes to share some insights for Medifast journey over the last 12 months and then provide you with some context for where we're taking the business. I'll then turn the call to Jim who will take you through Q3 financials.
There are two key takeaways from our latest results first our financial position remains very strong and we continued to deliver solid profitability. Despite continued topline headwinds second we're making steady progress on several initiatives to expand our offering into the broader health and wellness market and drive sustainable long term growth.
Our recent entry into the sports nutrition market with our new after via active line is one example.
Weight loss medications are another major opportunity for US is the surging awareness and popularity of these products has prompted a huge change in the way that consumers think about weight loss and lifestyle modification solutions in general.
As a result earlier this year, we commissioned an extensive independent market research study to understand consumer sentiment in regards to the medications and our coach base habits centers lifestyle program within this evolving business environment.
What was immediately clear is that our addressable market is split relatively evenly regarding weight loss medications around half of those looking for weight loss solutions are accepting of medical medication based therapies and around half of them reject the idea of using G. L. P. One medications like with Dolby to support weight loss.
The research clearly demonstrates that most of those who are interested in medical weight loss medications are also looking for support beyond a prescription that includes clarity on how they should incorporate healthy eating and exercise into their lifestyle, while using these medical solutions. Additionally.
They generally do not see weight loss medications as a lifelong commitment, but rather something that when paired with lifestyle modification can help them to make a long lasting change.
So with this in mind, we're focused on developing an approach that will enable us to make this new business environment, our sustainable growth environment.
We recently launched a pilot initiative with three different telehealth companies to explore how we might incorporate weight loss medication into our coach centered business model.
These pilots have given us some good insights around positioning and approach what particularly appears to be resonate with customers who are interested in medically supported a weight loss is a compelling three way partnership between customer clinician and coach.
Importantly, the efficacy claim of G. L. P. One medications for weight loss is based specifically on their incorporation with lifestyle changes that include a reduced calorie diet and increased physical activity.
As a result under message met a fast offering weight loss medications become one important element and an overall Taylor lifestyle plan that also includes coaching community support healthy habit development and nutritionally balanced meals along with exercise.
This holistic approach we are piloting as collaborative between the customer coach and clinician focusing on helping customers achieve lasting health and wellness as they learn to make a healthy lifestyle second nature.
As part of the Telehealth pilot program I mentioned, we have been working closely with a set of select coaches to bring them up to speed on the benefits of the opt to via solution for those who are currently using or considering using G. L. P. One or other weight loss medications.
Initial feedback suggests that most coaches involved as a pilot or optimistic about having another tool at their disposal for use with customers and that the partnership between clinician and coach is productive for customers, who want an approach that fits their own unique needs.
This pilot program has provided us with some important data and understanding and will use this information to inform our thinking now that we have shifted into the second phase of our pilot program.
During the second phase, we are measuring key metrics associated with after via customers, who are combining prescribed medical weight loss medicines with or after via program. We believe there is significant potential to maintain our market share and growth physician by tapping into this important new market, whether that's through a partnership.
Acquisition investment or an organically developed solution.
And we expect to provide more details on our approach in the coming months.
Of course for all those people who are not interested in weight loss medications. After via continues to offer a compelling lifestyle modification opportunity with our clinically proven coach led model that is built on the six macro habits of health, providing the cornerstone of reaching a sustainable healthy lifestyle.
Customers benefit from the support of an after vehicles, who understands the challenges one faces when looking to improve their overall health and wellness with most coaches having started as customers themselves.
The active role the coach tanks as well as the support of thousands of Likeminded individuals in the after the community who are also on their own health and wellness journeys is what continues to make our solution. So effective.
What is clear to the Medifast leadership team is that medical weight loss solutions have to sit within an overall health and wellness ecosystem.
Medications alone are not a long term solution and only by helping drive holistic lifestyle shifts can we help customers achieve lifelong transformation.
Exercises one important element of that which is why we're excited by our entrance into the sports nutrition market that took place in mid September with the launch of our new after via active product line.
The initial products in our new after via active line consist of essential amino acids whey protein powders and a digital exercise program offered through a partnership with active.
The products are aligned with the habits of healthy motion one of the six macro habits that underpin our business health model and can be used by individuals actively looking to move forward along the health spectrum by adding exercise to their health routine whether as part of a med medication supported or not.
Medication supported approach.
The products include two flavors of essential amino acids or E. A is as well as two flavors of whey protein and are developed to help support healthy muscle maintenance in conjunction with both exercise an everyday activity.
<unk> and weight loss are two common causes of reduced muscle mass.
Which is why it is important to have a diet that is inclusive of eas and quality protein and is nutritionally balanced.
The objectives of this launch are threefold first we believe these products expand our addressable market, allowing our coaches to attract a new demographic to after via.
Second they are expected to extend the lifetime value of op to via customers by extending their time with after via as they learn to live the habits of healthy motion during and after achieving their healthy weight.
And lastly, the extend our offering by adding exercise to the lifestyle program make it making it ideal for those who are interested in using lifestyle modifications along with the support of medical weight loss.
All the products are designed to be used in conjunction with our existing after via plans.
The new opt to via active product line expands the breadth of our overall addressable market and an important way.
The business opportunity within the sports nutrition market is substantial with a total addressable market that is over three times the size of the structured weight management market in which our products operated exclusively in the past.
We expect to add further active products to the line next year.
The work with weight loss medications and the entry into the sports nutrition market are really just the first steps in that a fast work to transform into a total lifestyle company, helping our customers make a healthy lifestyle second nature.
Regardless of whether a customer wants to explore weight loss with or without a medical solution Medifast has a compelling option for them.
Long term success is driven by the adoption of a healthier lifestyle built on nutrition exercise and other lifestyle habits are scientifically developed products are effective in achieving weight loss when following our clinically proven plans, including the support of our independent coaches and.
In a clinical study it was shown that those on the optimal weight five in one program, who had the support of our coach lost 10 times more weight than the self directed group.
Our approach is flexible and inclusive and we're excited by the opportunities that lie ahead.
Turning to the third quarter numbers.
Our revenues for the quarter were at the high end of our guidance.
Though down year over year by 39.6% is challenges faced earlier in the year continued as expected.
We continue to believe that the efforts we are taking to expand our product offerings incorporate medical weight loss into our programs and diversify our customer base will aid in improving these trends. However, we would not expect to see this improvement until 'twenty 'twenty four.
The operating margin for the quarter of 10.8% was ahead of our expectations as cost reduction actions taken as part of our fuel for the future initiative continue to generate savings ahead of schedule.
Operating margin is down approximately 150 basis points compared to last year as investments in customer acquisition and the loss of leverage of fixed costs due to lower revenues year over year had a negative impact on the margin.
As a reminder, 70% to 75% of our expenses are typically variable in nature, which speaks to the adaptability and resiliency of our business model.
As we move into the fourth quarter, we continue to focus on a number of growth initiatives using our strong debt free balance sheet and our fuel for the future expense reduction initiatives to help fund them.
As mentioned earlier in addition to our new after via active product line and the medically supported weight loss opportunities, where we're assessing we're also pursuing the expansion of our customer base by focusing on demographic groups in the U S where we are underrepresented specifically, we have been taking steps.
To further penetrate the Hispanic market and we have made great strides in translating our main materials and website into Spanish to better connect with this group. We've now translated more than 70% of our core materials into Spanish and expect to be completed by the end of the year in October in conjunction with the national Hispanic.
Heritage month, we executed on our first ever after via Spanish language, social and digital pilot targeting the U S. Hispanic market.
It was intended to begin building the optic via brand awareness and measure the effectiveness of our efforts to learn how to best market, our clinically proven health benefits and scientifically developed products plans coaches and community to this growing demographic.
It also enabled us to test and learn how to most effectively match Spanish speaking coaches with U S. Hispanic customers.
Our goal is to leverage the learning from the social and digital pilot as we anticipate launching a larger more comprehensive media effort to the U S. Hispanic market in 2024.
We believe that advancing our business in the U S. Hispanic demographic will help us set the stage for future expansion into Latin America.
Also we continue to evaluate the effectiveness of our customer acquisition initiatives, including our recent limited testing of company led digital marketing, which we conducted over a three month period to generate prospects.
We're conducting attribution analytics and path to purchase optimization, which should all result in more efficient advertising spend and scalability.
As a company that has a history of marketing directly to consumers, we understand the benefits of corporate advertising to generate prospects for our coaches.
It allows our coaches to better optimize their time and focus more on of their energy on supporting their customers.
We just have to ensure that the return we're getting on these expenditures is commensurate with the costs.
We also continue to grow our efforts around our corporate social responsibility initiative healthy habits for all.
At our off to via Convention in July our coach community raised funds for our nonprofit partners no Kid hungry and living classroom Foundation together with our coaches we assembled over 6000 kits for local Metro Atlanta Kids.
As kids headed back to school, our curriculum reached a new milestone.
Impacting an estimated 100000 plus students.
And thousands of schools across the nation free of cost since it launched last fall.
And in September we officially opened our new kitchen at the facility of our local partners living classroom Foundation.
Medifast provided capital funds to renovate the kitchen previously instructors, we're teaching healthy cooking classes on hot plates by welcoming kids into the kitchen and inviting them to experiment with healthy ingredients from a young age we can cultivate a habits in them that can last a lifetime.
So to summarize backed by a strong balance sheet with no debt. We are building out a new approach that better reflects the new realities of the weight loss and health and wellness marketplace in which plays to the competitive strengths of our existing offering.
We continue to seek to broaden our offerings to integrate medical weight loss expand our addressable market and extend our demographic and geographic reach along with optimizing our coach compensation and increasing corporate advertising to bring in new customers. These efforts are expected to aid in turning around.
And the recent decline in new customers and coaches, we have experienced over the past year.
We do not expect to start seeing a meaningful impact from these efforts until 2024 and our guidance for our fourth quarter, which Jim will cover in just a minute reflects the continued are short term challenges we face in customer acquisition and what is seasonally a weaker quarter. However.
However, we do expect our highly variable cost structure and expense reduction efforts under our fuel for the future initiative.
To continue to shore up our profit as we mitigate some of the revenue weaknesses in the quarter.
With that I'll turn it over to Jim to go over the specifics of the quarter.
Thank you Dan Good afternoon, everyone third quarter 'twenty twenty-three results were at or above our guidance.
As we continue to execute our cost reduction initiatives with the savings intended to be utilized for key initiatives to stimulate growth.
Revenue of $235.9 million was at the upper end of our guidance range of $220 million to $240 million, but decreased 39.6% versus the year earlier period, primarily driven by a decline in the number of active earning after via <unk>.
Coaches and lower productivity per active earning after via coach.
Customer acquisition continues to be pressured by the macro economic shift impacting inflation and interest rates and the growth in popularity of weight loss medications we.
We ended the quarter with approximately 47100 active earning after via coaches as a decrease of 28.9% from the third quarter of 2022.
Average revenue per active earning after via coach for the third quarter was $5008 a year over year decline of 15.1%, reflecting the continued headwinds to customer acquisition.
Partially offset by a price increase we implemented in November of last year.
Gross profit decreased 37.3% year over year to $177.4 million driven by lower revenue, while gross profit margin improved 270 basis points to 75.2%.
Positively impacted by efficiencies in inventory management, and lower supply chain costs, including benefits from the optimization of our distribution center footprint.
SG&A expense was down 35.3% year over year to $151.9 million due to the decreased coach compensation on lower volumes and fewer active earning coaches as well as progress on several cost reduction and optimization.
<unk> and the impact of charitable donations in 2022.
SG&A as a percentage of revenue increased 430 basis points, primarily reflecting the loss of leverage on fixed costs due to lower sales volumes compared to 2022 as well as market research and investment costs in this year's third quarter related to medically supported.
Eight loss activities.
Income from operations was $25.5 million in the third quarter of 'twenty twenty-three down 47% versus the year earlier period, driven by lower gross profit, partially offset by lower SG&A and aided by the fuel for the future cost reduction efforts.
<unk> as a percentage of revenue income from operations was 10.8% in the third quarter 850 basis point decline versus the year earlier level the.
The effective tax rate of 12.9% was lower than expected and meaningfully lower than the 24.5% recorded in the prior year's third quarter due to an increase in the tax benefit for charitable donations of inventory an increase in the in research and development tax.
Credits and a decrease in state income taxes during.
During the quarter ended September 30th 2023, the company completed its 20 twenty-two federal income tax return, which included an update to the estimated tax basis cost of charitable donations of inventory and the estimated research and development tax.
Credits.
Net income in the third quarter of 'twenty twenty-three was $23.1 million or $2.12 per diluted share compared to $36.2 million or $3.27 per diluted share in the year earlier period.
Turning to our balance sheet and cash flows our financial position remains strong with $157.8 million in cash cash equivalents and investment securities and no interest bearing debt as of September 30th 20 twenty-three.
Cash flow from operations continued to be strong at $137.1 million from the nine months ended September 30th 20 twenty-three relatively in line with a year ago period.
Turning to the guidance.
While our third quarter results were ahead of our guidance the operating environment remains challenging and we continue to expect that future growth initiatives will take time to gain traction and deliver meaningful results for the full year 'twenty twenty-three. We are estimating revenue in the range of 1.15 to 1.07.
<unk> billion dollars and diluted EPS to be in the range of $8.65 to $9.55, our guidance assumes a 20.5% to 21.5% effective tax rate.
In summary, we remain confident.
That our strong financial position, coupled with the progress we are making towards towards exciting new growth opportunities discussed by Dan will enable us to evolve our business like we have successfully done in the past and allow us to continue to generate significant cash flow and strong returns on capital.
In the years ahead.
With that let me turn the call back to the operator for questions.
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Our first question comes from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your question.
Yes Hello.
So your gross margin was very impressive in the quarter the 75% number.
It sounds like those are permanent type improvements you've made along the lines of the supply chain is that 75% gross margin level is that's something that's roughly sustainable going forward.
Sure.
How should we think about that that level.
Yeah. The Linda this is Jim so the gross margin improvement we saw.
In Q3.
At the at 75%.
We saw that through our fuel for the future initiatives.
We're starting to see the benefits of optimizing our distribution centers.
Which you know we've seen improvement in our inventory controls with.
Less obsolescence compared to the prior year and we've also seen improvement in our procurement practices, which have lowered costs.
The the thing when you're you know, we're not really going to talk to you know the gross at a gross margin level since we haven't provided guidance going forward.
But what I can say on that is.
Yeah.
There is some fixed costs within our cost of sales.
As as we see lower.
<unk> revenues that are forecasted we will lose some leverage on our P&L.
P&L within the gross margin level.
So.
You know that.
That will impact Q4.
So right now we're projecting the revenue range in Q4, but between 170 and $190 million in Q4 and that loss on leverage.
Will impact gross margin.
Okay.
Right Okay.
And then.
I'm curious about.
Youre talking about the testing.
Trying out some digital marketing.
That said and that's a little unusual.
Pay a lot of conditions.
That's going to drive demand.
Do you think down the road like if you were to adopt some kind of permanent method of digital marketing.
Is there any way to quantify like what percentage of revenue you might spend on that are we talking a flagged 13 percentage points of revenue or.
Could it be higher than that.
Alright.
Yes, Linda we're at the very beginning stages of doing this test as you know for the past. This is a this.
This is not new to us in the past we had a direct marketing organization that are marketed directly to end users.
We as you pointed out.
<unk> moved away from that letting our coaches I use the word of mouth campaign.
Over social media.
And faith it rather than.
Our spending our dollars to do that.
The reality is that the environment has changed and.
Through some of the things that we've talked about in the past, including changes in social media algorithms as well as a more crowded and and more.
Let's say dynamic messages going on out there we think it's a good time for us to.
Take some of those learnings we have from the past.
Some of the learnings that we talked about in the future around medical weight loss and to introduce a new message.
Through the.
The company's.
Led advertising and we've been doing small tests, we feel good about what we've seen so far anything that we do will be done.
Only once we understand the benefits from a financial standpoint of doing it. So I'd say the important thing is assume that that we are going to.
Tests right now, which is what we've been doing both in the Hispanic market and more broadly.
I understand how we improve that.
That client.
Client acquisition cost and use it to get a new message out there that ties to our broader offering that includes.
The things that we're learning about the ability to offer medical weight medically supported weight loss.
Our ability to offer a broader.
Offering which includes inclusive of the active program.
And we believe all of this will help make our coaches more productive and return too.
So the productivity levels, we have been in the past.
Okay, and then I was just wondering about.
If you could give any color on what you saw in October.
Return to people.
Education alone.
Hum like are you seeing kind of worsening trends or kind of the same.
What are you seeing kind of so far in the most recent couple of weeks.
Yeah, I mean, when you look at look at our metrics and reliable speak to our metrics when you look at <unk>.
The retention of customers when you look at our average.
Revenue per order.
Those those types of metrics have held steady in the month of October.
It's really.
Yeah.
The customer.
Acquisition is the one metric that we're seeing that it is below our historical norms.
And that is reflected in the guidance we provided.
Okay.
Okay.
And then.
We can do the napkin, Tim what what are you guiding for tax rate for the fourth quarter.
Yeah.
Yeah for the fourth quarter.
You know just this step back on the tax rate. So we're actually.
<unk> seen.
See you know.
That.
So you know as as we as we noted in the earnings release.
We finalized our 2022 tax return in Q3 and as soon as a standard practice, we adjust prior estimates.
To.
The actual amounts per the tax return during this timeframe typically it's not this <unk>.
Large of an adjustment and we actually werent anticipating it to be that size.
Size.
But it's really just a one time adjustment you can see that.
<unk> on a full year basis.
Our tax rate to be between.
25% to 21, 25%.
On a full year basis, so on the on the quarter basis.
I wouldn't expect that youre going to see 12, 9% again, you're just going to you're going to see something much closer to the.
20% level.
Yeah.
Okay and is that one time tax benefit is that cash or noncash.
Now that was a.
That was a.
Cash benefit that we that.
We got in 2023.
So it's essentially reflected in your year to date cash flows.
Correct, yes.
Okay. That's it thank you very much.
Thank you.
Our next question comes from the line of Jim <unk> with Stephens Inc. Please proceed with your question.
Hi, guys. Thanks for taking our question I wanted to ask a little bit around the consumer that seems to not want to engage with the.
Medically supported weight loss to be honest, a 50 50 split is frankly better than we would've anticipated just given all the headline news about the G. L. P. One drugs can you maybe offer some color around what their hesitation is to to use kind of the pharmaceutical option on that.
Is that something that maybe over time their opinion could change.
Yeah. Yeah. This is Dan I think this has been an interesting part for us too because I think what we do.
We would have expected something slightly different oh.
As well, but I think that set of consumers are those who are ill say more confident in their ability to do it on their own.
And don't feel like they are ready for a medical intervention, what we do know is that as the.
The amount of weight loss and individual has to lose goes up their interests and medically supported weight loss goes up as well.
But equally important for us was that we saw.
Those individuals who are who were interested in medically supported weight loss were also those individuals who are most interested in are the off the via program. So we tested a variation on the on our program that are specifically designed and focus.
On helping those who are either thinking about.
Using monthly support weight loss or currently using medically supported weight loss and that group was roughly four times is interested.
And in our program.
As those who are not interested in medical support weight loss. So really it's about their confidence in doing on their own and their ability or their need for.
Greater weight loss.
In terms of overall weight to lose.
Okay.
That's helpful.
I think in your prepared remarks, you mentioned that you were working with a select group of quote coaches.
Help how to train them on the cross sell with the G. L. P. One drugs can you just give us an idea for what was just kind of a random selection of coaches and just wanted to have a smaller pilot program.
Or were they selected based on maybe their existing customer base that might be more susceptible or more likely to pair the G. L. P. One drugs with your program.
Yeah. So typically what we do is and this is this rotates depending on what we're trying to test so we work.
Consistently with our coach leadership to identify different.
Things that we want to test. So these these coaches.
Sure.
Were selected based on their ability to pivot to test a new.
A new message and based on there.
There.
Performance in the past of being able to generate activity from their client base.
So they're not.
So we didn't go out and try to find though we didnt, we didnt pre screened them to find out whether they were open to the idea of we took a small subset of its upside.
Example of our.
Over 40000 coaches.
And and and with a very specific focus on understanding how clients that they pull then would respond and then also how coaches would response to this new model of.
Creating a partnership between clinician.
Coach and client and what we found was very positive I think there is initial initially.
A lot of questions from our coaches about how this might work.
And as.
As we have proceeded through the pilots what we've found is that there are there is an increasing number of clients.
Who are being coached them who are currently all medical weight loss and the this edition of the ability to offer.
This service if you will of <unk>.
A prescription form actually support a weight loss along with the program supported.
Supported by an after via coach has a significant significant appeal so with that in mind. We are we have moved from phase one of that pilot phase two so now what we're really specifically focused on us is understanding what a medically supported weight loss clients or customer looks like as they.
They move through their health transformation journey with the coach but the initial.
Initial results were positive enough for us to move to the next phase.
And we have a strong belief that the.
There are some.
That's the off the var program lifestyle program that now includes the active line is is actually more relevant than it ever has been before but it requires us to be able to offer.
That that ability for that 50%, who want medical support and weight loss to be completed.
Thanks, that's helpful color, maybe it was you you mentioned the active one if I could shift to ask a question or two there. It sounds like it's really meant to be complementary to someone who's already.
Engage with the broader program.
Do you have a sense for if there's an opportunity to lead with active for maybe a customer. That's you know at kind of their target weight already but wants to help what's the maintain that and once a kind of a collaborative environment, where they can work with a coach or is it really something that comes in after.
The clients already signed up for the broader program and that just kind of helps them as they get closer to their way law school.
Actually a little bit of both.
What it does is it expands our addressable market.
Significantly.
And it does that.
Bye.
Both of the examples that you use for those who are coming in.
And interested in weight loss, specifically it allows our coaches to include the habit of healthy motion or exercise.
As part of that program from that standpoint.
It helps drive up lifetime value, both by increasing expenditure, while their own program as well as extending the lifetime value as they as they transition off it also allows us to extend.
That target to those who are already.
Closer to their healthy weight and are focused on.
I'm moving more towards an optimal health.
[noise] optimal health states and there are in their health journey and so in that case.
Can take somebody who.
Who is already at a healthy weight and improve their overall health by adding exercise to it equally.
Equally important.
For reasons that we've talked about this is adding the active line and an active program completes our overall lifestyle management solution.
I don't think it's lost on anyone that our all of the research that was done clinical research fight.
The medical weight loss.
Pharma companies are.
Their claims are tied to.
Healthy diet or a reduced calorie diet and increased activity. In addition to taking the G. L. P. One drugs and so.
The addition of the active line and coaches, who can coach to increase physical activity.
Fleets, our offer from that standpoint, as well, allowing us to be very complimentary and even at the center of the long term solution for those who are using <unk> one drugs.
That's very helpful. Maybe one more question on on the active line I know, it's still early days is there kind of a line of sight to.
To expand the product offering there beyond just kind of your core protein and amino acids, but there are other products. We can think about whether it's like Oh.
You know supplements or like a pre workout that would be complementary or is that too much kind of outside the core of what you're trying to do.
Yes. The plan is to extend the line with products being launched next year.
Again reflective of what we learned about this initial launch.
But we are already.
Receiving feedback from and had already identified some some close in opportunities to make the line more competitive and more complete so the intention is to introduce additional products next year.
Okay, Great I'll hop back in the queue. Thanks, guys.
Thank you.
Our next question comes from the line of Doug Languid Water Tower Research. Please proceed with your question.
Yes, hi, good evening, everybody and alright.
Alright.
<unk> for the G. L. P. One it's pretty compelling Dan that you make here and I understand wanting to add it to your product offerings I guess I look at your balance sheet I want to just assume that outright acquisition makes a lot of sense. That's you know that's what weight watchers did but you mentioned a number of other possible arrangements partnerships investments et cetera, maybe help us understand.
And why something other than an outright acquisition could make sense here.
Sure. It's good to hear from you.
We have oh.
A very thoughtful approach to this initially.
We were evaluating.
What role <unk>, one drugs might play in a coach center habit based.
Model.
We moved from analyze into exploring.
By partnering.
Partnering with three different telehealth companies and that's allowed us to get a feel for what we have that's complimentary what they'd have that gives us the ability.
To to make this offer compelling for our customers and our coaches.
What we found is there's some things that we do very well that our telehealth companies do and Theres some things that they do.
Very well or they have a capability of doing that we don't have the capability of doing but.
Theres a lot outside.
Outside of that are that crossover.
So.
As we're moving to the end of this next phase we're trying to ensure that we do what is right for the business and by that I mean, both coaches clients, but also our financials.
There are different levels.
Levels of success and profitability inside telehealth companies and as you know we have one of our success marks in the past than high cash generation.
Improved margins. So we're thoughtful about how we maintain that.
But also.
Have the potential of leveraging some of these outside capabilities. So it's an evaluation and that evaluation is being made an even deeper level now that we're moving into phase two of these pilots.
That makes a lot of sense that that's good color I mean can we see.
These things were.
You start with an investment or start with the partnership moves to an investment move through an acquisition I mean, this could be a multi stage process right.
Yeah, absolutely I think one of the things that we.
Are all very well aware of is this what well G. L. P. One drugs in the first generation.
And second generation has been around for a while there's a there.
There are a lot of changes that are taking place included including insurance coverage, including different types of products and they're coming out or are currently.
And testing so we're watching very closely and making sure that we remain nimble and we'll do what's right for our investors and what works from a capital standpoint, I think you pointed out accurately Doug we have a lot of flexibility because we have no.
No debt on our balance sheet strong cash position and the ability to make a lot of good decisions for the long term as well as the long term start continues to unfold and we learn more about.
The market and how it.
It works inside of our model.
Alright that makes sense. Thanks, Dan.
Okay.
And it looks like we have reached the end of the question and answer session I'll now turn the call back over to Dan <unk> for closing remarks.
Thank you and thanks for your continued interest in interest in Medifast as a team. We're excited by the opportunity that lies ahead and we look forward to sharing more on our progress in the coming weeks and months, we hope to see many of you at the upcoming Investor Conference, including the Stephens Annual conference on November 14th and the ICR.
Our annual conference in early January.
Again, thank you for your time today.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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