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Five Below2020 ANNUAL REPORT We are a mission-driven organization that is making a real difference. Every year we are helping our Coaches and Clients turn simple habit-building into lifelong transformation with the goal of making the world healthy. Chairman & Chief Executive Officer Dear Fellow Stockholder: his has been a truly remarkable year for the world and for each of us. The impact of the COVID-19 pandemic on our society and on many of us as individuals has been devastating, and our thoughts and best wishes go out to those of you who have lost loved ones or who have been personally affected by the virus. The pandemic has caused a unique set of challenges for all businesses, and Medifast has been no exception in that regard. Employees at our manufacturing and distribution centers have coped admirably with strict safety protocols designed to keep them safe and healthy while delivering products in a timely way to our independent OPTAVIA Coaches and Clients. Meanwhile, all of our office-based team members around the world have been working from their bedrooms, kitchens and living rooms as they have continued to help Medifast deliver on our mission to offer the world Lifelong Transformation, One Healthy Habit at a Time®. Their efforts have been nothing short of outstanding. Thanks to the hard work of our team and the OPTAVIA Coach Community, Medifast achieved record revenues during 2020 of $934.8 million, an increase of 31% over the prior year. Net income increased 32% year-over-year to $102.9 million. These excellent results were driven in large part by significant year-over-year and sequential improvements in the number of active earning OPTAVIA Coaches. By the fourth quarter of 2020, our number of active earning Coaches grew to 44,200, a new record for the business. This success was achieved despite the significant headwinds for the business caused by the pandemic, including the cancelation of our annual OPTAVIA Convention, which we had planned to make bigger and better than ever at a new expanded location. With large numbers of people unable to gather, our team quickly pivoted to a virtual event we called OPTAVIA Together Live. The online setting ensured we were no longer constrained by the size of a venue, and more than 50,000 people registered to participate. As a result, we reached more people than ever before and generated more than 140,000 views on Facebook, as Coaches hosted watch parties and live events on social media. The Convention remains an important part of the OPTAVIA experience, and we look forward to being able to gather Coaches in person again later this year. However, the pandemic has provided us with important learnings that we believe will enable us to continue to drive Coach and Client growth for the long-term. As an example, COVID-19 caused us to make important changes to incentive programs and social media initiatives. With these new strategies in place, our Community of Coach leaders drove significant gains in both new Clients and Coaches, reaching new audiences and achieving strong results. We are excited by what we have seen, and we are looking forward to building on that momentum over the next twelve months. This is a pivotal moment for the health and wellness industry. The pandemic has led to a greater emphasis than ever before on the importance of improved health. Weight loss is at the core of that effort, and the industry has been growing at about 6% per annum and is worth about $20 billion today. With over 7 in 10 of all adults in the United States aged 20 and above now overweight or obese*, there is a clear need for proven health and wellness solutions, such as those offered by OPTAVIA. Our sponsored survey last year** suggested that around 63% of U.S. adults report they have taken up new positive health routines since March 2020, and of those, approximately 96% plan to continue embracing healthy habits in 2021. All of this means that there is a significant opportunity for our company, and our performance over the past year is a demonstration of the way that our products and *National Center for Health Statistics and proprietary study by McKinsey & Company 2020 **All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,426 adults. Fieldwork was undertaken between 22nd-23rd February 2021. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+). The margin of error for this survey is +/- 3% at 95% confidence. †Appel, L.J., et al., Comparative effectiveness of weight-loss interventions in clinical practice. N Engl J Med, 2011. 365(21): p. 1959-68; Harrigan, M., et al., Randomized Trial Comparing Telephone Versus In-Person Weight Loss Counseling on Body Composition and Circulating Biomarkers in Women Treated for Breast Cancer: The Lifestyle, Exercise, and Nutrition (LEAN) Study. J Clin Oncol, 2016. 34(7): p. 669-76; van Wier M.F., et al., Phone and e-mail counselling are effective for weight management in an overweight working population: a randomized controlled trial. BMC Public Health, 2009. 9: 6; and Donnelly, J.E., et al., Comparison of a phone vs clinic approach to achieve 10% weight loss. Int J Obes (Lond), 2007. 31(8): p. 1270-6. our Coach-centered approach resonate with Clients everywhere. business while returning significant value to stockholders through dividends and share repurchases. We will continue to drive industry share by supporting our independent OPTAVIA Coaches and serving a growing number of Clients. Our Coach-centric approach is a clear competitive advantage for us as we seek to deliver on our mission. Studies show that having a support system can help you get better results†, and OPTAVIA’s proprietary tools and vibrant Community help provide critical support to those looking for long-term healthy habits. As our business grows, we must continue to invest in expanding our organizational infrastructure and capabilities. We have placed great focus on critical areas, including technology, manufacturing and distribution, and digital products in order to take full advantage of the long-term growth opportunity. Examples include opening a new technology center in Utah as a digital lab for developing tools that create efficiencies for Coaches and drive engagement for Clients; sunsetting our Medifast Direct channel and Medifast-branded products to rationalize our product range and place deeper focus on OPTAVIA; expanding capacity and operational excellence in our supply chain; and launching new apps and productivity tools to help Coaches and Clients achieve all their goals. International expansion remains an important priority for the business, and while we remain in the early days of our efforts outside the United States, we look forward to building on initial momentum over the next year. As a team, we are working diligently to help build long- term sustainable growth for all stakeholders. We have a strong, dynamic and agile organization that is able to adapt quickly to change and deliver on important strategic growth initiatives. We are in a solid financial position with good fundamentals and are able to invest in growing the Most importantly, we have a world-class team that is getting better and better every month, and we have a repeatable business rhythm that acts as an engine for the growth that we foresee continuing for many years ahead. 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 year, our commitment to these groups has remained a priority. Through our philanthropic initiative, Healthy Habits For All®, we are focused on changing lives for the many, not just the few. I am proud of the work that the company, our employees and our Coach 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. We are a mission-driven organization that is making a real difference. Every year we are helping our Coaches and Clients turn simple habit-building into lifelong transformation with the goal of making the world healthy. We have impacted 2 million lives, and we are not going to stop there. We have an incredible opportunity ahead of us as a Company, as Coaches, as Clients, as employees and as investors. I look forward to you being part of our journey for many years to come. Sincerely, Dan Chard | Chairman & Chief Executive Officer FORWARD-LOOKING STATEMENTS Certain information included in this Annual Report, such as descriptions of Medifast’s objectives, goals or targets, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond the Company’s control and are difficult to predict. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward-looking statements are reasonable, actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include, among others, Medifast’s inability to attract and retain independent OPTAVIA Coaches, increases in competition, litigation, regulatory changes, its planned growth into new domestic and international markets and new channels of distribution and other risks, disruptions in Medifast’s supply chain, the impact of the COVID-19 pandemic on Medifast’s results, the severity, length and ultimate impact of COVID-19 on people and economies, and uncertainties and factors identified in Medifast’s filings with the U.S. Securities and Exchange Commission. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Medifast undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 2020 10-K
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