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Text: If you have not received the release, it is available on the Investor Relations portion of Medifast's website at www.medifastinc.com.
These statements do not guarantee future performance, and therefore, undue reliance should not be placed on them.
After I've provided some updates on our business performance, Jim will review the Q4 financial results in more detail.
We closed the year on a strong note, with accelerating top line growth over the third quarter.
Revenue increased 55.3% to $264.9 million in the fourth quarter of 2020, and we continue to execute strongly across all areas of the business.
Earnings per diluted share were $2.36, a 42.2% increase over the prior year period.
However, due to significant differences in tax rates between the periods, we believe income from operations is a better gauge of how we perform from a profitability standpoint.
Jim will discuss our tax rates in more detail when he covers our financial results.
For the fourth quarter, income from operations was $38 million, an increase of 103% versus the same period last year.
Growth was driven by significant year-over-year and sequential improvements in the number of active earning OPTAVIA Coaches, which grew to 44,200 in the fourth quarter, another new record.
Additionally, productivity per active earning coach increased 13.4% to $5,932 during the quarter compared to the prior year period.
Our client community remains strong, and we finished 2020 even better than expected, with successful incentive coach programs in Q4 that position us well for 2021.
The initiatives we've implemented over the past one to two years are delivering consistent, meaningful progress as evidenced by the results we announced today.
The company's focus continues to be supporting our growing community of independent OPTAVIA Coaches as they develop and focus on the four competencies that drive our business success, namely, attracting new clients, supporting clients on the Optimal Weight 5&1 Plan and supporting new coaches and developing coach leaders.
There's an ever-growing number of individuals seeking greater health and wellness, and we remain resolutely focused on targeting those for whom diets have filled and who desire a holistic approach to optimizing their overall health and well-being.
The key insights supporting our sustained growth is that clients do better on their health and wellness journey when they have the support of a coach.
Coach-led model has been clinically proven to be more effective in this regard.
As such, we have combined the most powerful aspects of the direct selling model and direct-to-consumer offerings and created a model that puts the OPTAVIA Coach at the center of helping clients on their health transformation journey with the company providing the distribution infrastructure to supply products directly to the end consumer.
We reach our target audience through the community of OPTAVIA Coaches, who leverage social media channels to relate their success with our proprietary habits of health transformation system and products.
Our vision is to achieve long-term sustainable growth in the mid-teens by penetrating the large and growing addressable market in the United States, continuing our expansion into Asia Pacific markets and developing other large markets throughout the world.
As we continue to grow at scale in both coaches and clients, it's essential that we place sharp focus on building an operational foundation through investments related to organization, technology, digital products, manufacturing and distribution.
This will allow us to take full advantage of the long-term growth opportunity.
Consistent with the business and brand strategy that we communicated last quarter, we are moving forward with the sunset of our Medifast Direct channel and Medifast branded products and anticipate this being complete by the end of the second quarter.
By focusing on building capabilities in the areas that matter most to our OPTAVIA Coaches and client-centered model, we will further enhance and solidify our competitive advantage in the health and wellness space in support of our long-term growth and profit vision.
Last year, we initiated an important project to rationalize our SKUs, enabling us to place greater focus on the most popular and profitable products in our portfolio and to place a more consistent emphasis on our OPTAVIA brand.
We continue to enhance our supply chain capabilities to meet product demand across core items, while also empowering further operational optimization across all aspects of the manufacturing and the distribution network.
The strategic value of having a strong supply chain has never been more important, and we continue to prioritize these investments, focusing on expanding capacity as well as driving operational excellence.
We remain on track to support a $2 billion revenue business by the end of 2021, creating ample headroom for several years depending on the trajectory of future growth.
We are scaling up new and existing co-manufacturers, which mitigates the risk through diversification, while also adding capacity.
We are also working closely with our third-party logistics partners to leverage their capacity as well as adding distribution assets to our facility in the Maryland area.
Technology remains another key area of focus for Medifast.
We opened a new technology center in Utah roughly a year ago to become our pioneering digital lab for developing tools that create efficiencies for coaches and drive engagement for clients.
Our OPTAVIA Coaches continue to refine their use of technology and social media in attracting new clients and broadening their reach.
Overall, the new coach-directed training regimen and technology support systems are increasingly effective at supporting more clients than has been historically possible.
Deeper digital expertise will also allow us to further leverage the competitive advantages of the coach model.
During the first half of 2021, we will launch the beta version of the OPTAVIA Coach Connect app, a powerful productivity tool aimed at helping coaches manage clients.
We will also launch the beta version of the OPTAVIA client app, which focuses on meal planning on the OPTAVIA Weight 5&1 plan.
Our team in Utah continues to work on a range of other tools to drive digital engagement with the field, and we're excited about the opportunities in the light had in this space.
In 2020, our revenue growth rate was roughly two times our long-term growth rate, essentially pulling forward an entire year.
While we're clearly pleased with this elevated growth rate, as a management team, we're focused on delivering long-term sustainable value.
Our current business remains strong, and I've never been more confident in the direction of the company and our ability to drive consistent and sustainable growth by delivering on our mission of lifelong transformation, one healthy habit at a time.
For current stockholders and prospective investors, the Medifast story remains compelling for several reasons.
First, our addressable market is large and growing.
The U.S. weight loss market that is core to OPTAVIA's business has been growing at about 6% per annum and is worth $20 billion today.
Roughly 70% of the U.S. population is overweight or obese, and this segment is growing at 2% per annum, which highlights the importance of a proven health and wellness solution like the one we offer.
Earlier this year, we commissioned an independent survey that showed that the pandemic has only heightened consumer focus on health and wellness.
Around 63% of Americans report that they have adopted new positive health routines since March of 2020.
And of those, 96% plan to continue embracing healthy habits this year.
COVID-19 is causing people to put their personal health and wellness higher up in their priorities, and this presents a significant opportunity for our company.
Second, our holistic coach center approach is supported by proprietary tools in a vibrant community that provides a clear competitive advantage in the health and wellness space.
Again, it is clinically proven that people who want to lose weight do better when they have the support of a coach and a community, and that principle is the very heart of the OPTAVIA offer.
Third, we have a dynamic and agile organization that adapts quickly to changes in the marketplace.
Even when those changes come at an unexpected and rapid pace, such as what we saw last year as a result of COVID-19.
That makes us more nimble and better placed to take advantage of tactical opportunities as they emerge.
Finally, we have a strong financial position, efficient business and disciplined strategy for allocating capital, prioritizing organic growth opportunities while returning a significant amount of value to stockholders through dividends and share repurchases.
Before I turn the time over to Jim, let me note that our commitment to lifelong transformation is not just in our work with coaches and clients, but also through our active support of the communities in which we live and work.
In this challenging time, our commitment to these groups remains a priority.
As an example, in the fourth quarter, Medifast behavioral health specialists and registered dietitians and nutritionists partnered with select OPTAVIA Coaches to lead remote classes and activities for the second and fifth graders of the Living Classroom Foundation in Baltimore.
For children, the pandemic has brought about increased feelings of stress and anxiety, and these classes were designed to promote the habit of healthy mind and to empower children to better handle stress.
Proud of the work that the company, our employees and our pitched community are doing to create opportunities for people from all walks of life to deliver the best possible version of themselves in whatever way possible.
With that, let me now turn the time over to Jim Maloney, who will walk you through the financial results.
Revenue in the fourth quarter of 2020 increased 55.3% to $264.9 million from $170.6 million in the fourth quarter of 2019.
As Dan highlighted, we achieved another record quarter of active earning coaches ending the quarter with 44,200.
This represents 39% growth as compared to 31,800 coaches in the same period last year and a 5% increase from the end of the third quarter of 2020.
Average revenue per active earning coach for the quarter was 5,932 and compared to 5,229 for the fourth quarter of 2019 and down $6,329 in the third quarter of 2020, mainly due to timing of promotional activity from one quarter to another.
The fourth quarter 2020 was the second-highest level of revenue per active earning coach in our history, and we are very pleased with this strong result.
Programming in the quarter was largely unchanged from last year's December Dash, other than timing, indicating the strength of the underlying fundamental of our model.
OPTAVIA branded products grew to 87.2% of our total company consumable units sold in the fourth quarter, up from 79% in the prior year period.
Gross profit for the fourth quarter of 2020 increased 55.6% to $199.2 million compared to $128.1 million in the prior year period.
Gross profit as a percentage of revenue was 75.2%, a slight increase compared to 75.1% in the fourth quarter of 2019.
SG&A for the fourth quarter of 2020 increased $51.9 million to $161.3 million compared to $109.4 million for the fourth quarter of 2019.
The increase was primarily due to higher OPTAVIA commissions expense as a result of growth of OPTAVIA sales as well as increased salaries and benefits related expenses, partially offset by a decrease in sales and marketing expenses.
SG&A as a percentage of revenue decreased 320 basis points year-over-year to 60.9% versus 64.1% in the fourth quarter of 2019.
Income from operations increased $19.3 to $38 million from $18.7 million in the prior year period, primarily as a result of increased gross profit, partially offset increased SG&A expenses.
Income from operations as a percentage of revenue was 14.3% for the quarter, an increase of 340 basis points from the year-ago period.
The effective tax rate was 26% for the fourth quarter of 2020 compared to 22.4% for the September 30, 2020 year-to-date and compared to a tax benefit of 4.7% in the year-ago period.
During the fourth quarter of 2020, the effective tax rate increased 3.8%, which reduced earnings per diluted share by $0.12 due to a discrete tax reserve recorded during the period.
For the full year of 2020, earnings per diluted share was negatively impacted by $0.12 due to this discrete tax reserve.
The fourth quarter of 2019 tax benefit reflected the impact of federal tax benefits from share-based compensation, partially offset by increases in the effective state tax rate of 2%.
Net income in the fourth quarter of 2020 was $28 million or $2.36 per diluted share, based on approximately 11.9 million shares outstanding.
This compares to net income of $19.9 million or $1.66 per diluted share-based on approximately 11.9 million shares outstanding in the prior year.
Our balance sheet remains very strong with cash, cash equivalents and investment securities of $174.5 million as of December 31, 2020, compared to $92.7 million at December 31, 2019.
The company remains free of interest-bearing debt and believes it is well positioned in this challenging near-term macroeconomic environment.
Our Board of Directors declared a quarterly cash dividend in the fourth quarter of $13.4 million or $1.13 per share, which was paid on February 5, 2021.
There was -- there are approximately 2,323,000 shares of common stock remaining under our stock repurchase program.
Consistent with last quarter and due to the ongoing uncertainties related to the COVID-19 pandemic, we are not providing guidance at this time.
We would, however, like to provide you with some insight into the first month of the first quarter and that January's top line year-over-year growth trends are performing consistent with or better than the trends we experienced in the fourth quarter.
If you are attempting to develop a financial model for 2021, I will remind you that Q2 through Q4 2020 have much harder comparables than Q1 2020 from a top line basis.
As Dan discussed, in 2021, we intend to sunset our Medifast Direct channel and Medifast branded products and further invest in our supply chain and technology.
We've also budgeted for a return for in-person convention if safety measures permit.
These decisions and investments will have an impact on our operating margins during 2021 but will enable long-term growth and operating income objectives.
Again, if you are developing a financial model for 2021, these initiatives will increase costs.
In closing, 2020 has been a very robust growth in the face of a very challenging and uncertain environment.
We remain confident in our business model and are well positioned to capitalize on opportunities that lie ahead.

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compname reports q4 revenue $264.9 million.
q4 earnings per share $2.36 .
q4 revenue $264.9 million versus refinitiv ibes estimate of $244.5 million.

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