Medifast, Inc. Announces Fourth Quarter and Fiscal Year 2011 Financial Results Company Introduces First Quarter 2012 Net Revenue Outlook of $86.5 to $88.5 million and EPS of $0.36 to $0.38

OWINGS MILLS, Md., March 13, 2012 /PRNewswire/ -- Medifast, Inc. (NYSE: MED), a leading United States manufacturer and provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the fourth quarter and fiscal year ended December 31, 2011.

"We ended the year with a renewed strategic focus on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center and Wholesale Physicians sales channels, and our internal support divisions to better position our business for maximum profitability long-term," stated Michael C. MacDonald, Chairman and Chief Executive Officer. "Going forward, our executive team is continuing to review and enhance our overall cost structure to further leverage our sales momentum, improve our margins and deliver improved earnings results, while continuing to focus on enhancing the customer experience in each of our sales channels."

Fourth Quarter 2011 Results

For the fourth quarter ended December 31, 2011, Medifast net revenue increased 10% to $69.6 million from net revenue of $63.0 million in the fourth quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, Medifast Weight Control Centers and Wholesale Physicians, contributed to this year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 4% to $43.3 million in the fourth quarter of 2011 compared to $41.5 million in the same period last year. Growth in revenue for Take Shape for Life was driven by increased customer product sales as a result of an increase in the number of active health coaches. The Company ended the quarter with approximately 9,600 active health coaches, an increase of 7% compared to 9,000 in the fourth quarter of 2010. The average revenue per health coach per month for the fourth quarter was $1,450 compared to $1,550 in fourth quarter of 2010.  

The Company's direct response marketing channel revenue increased 6% to $15.6 million, compared to $14.7 million in fourth quarter of 2010. Marketing and advertising expenses increased approximately 4% to $5.5 million in the fourth quarter of 2011 compared to the same period last year.  The Company maintained a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the fourth quarter of 2011 compared to the same period last year. The Company continues to experience a more effective advertising message through more targeted advertising based on extensive analytical research, increased targeted advertising content, and in turn, improved call center and web conversion rates.

In the fourth quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 57% to $10.7 million, primarily due to strong organic growth from the opening of new corporate and franchise locations and a year-over-year improvement in comparable store sales of 19% for centers open greater than one year. The Company had 39 Medifast Weight Control Centers in the comparable store base at December 31, 2011. The Company opened 10 new centers in the fourth quarter for a total of 70 corporate and 30 franchise centers.   The Company realized a pre-tax earnings decline of $4.5 million compared to the fourth quarter of 2010.  The decrease in profitability is primarily due to the hiring of expertise in key areas to build the internal infrastructure to open new Medifast Weight Control Centers in 2011 and beyond.  Hires included regional trainers, district managers, area managers, mobile managers, dieticians, HR recruiters, operations support and marketing.  In addition, 31 new corporate centers were opened in 2011 which also resulted in decreased profitability attributable to the startup costs as the stores were in the ramp-up phase during 2011.

Gross profit for the fourth quarter of 2011 increased 12% to $52.3 million, compared to $46.8 million in the fourth quarter of the prior year. The Company's gross profit margin increased 100 basis points to 75.2% in the fourth quarter versus 74.2% in the fourth quarter of 2010. The gross profit margin improvement was primarily the result of leveraging fixed overhead costs in our manufacturing facility.  A modest mid-year price increase in 2011 offset increased raw material, fuel, and other transportation charges.

Selling, general and administrative expenses increased $9.1 million or 22% to $50.7 million in the fourth quarter of 2011 versus $41.6 million last year. As a percent of net sales, selling, general and administrative expenses were 72.8% compared to 66.0% in the fourth quarter of 2010. The largest increases in selling, general and administrative expenses were primarily related to increased expansion of the Medifast Weight Control Center model with 10 corporate centers opening in the fourth quarter which led to additional expenses with minimal sales during the new centers ramp up phase.

During the fourth quarter, the Company recorded $1.3 million of additional charges related to increased technology costs, rent expense, and depreciation charges related to the Medifast Weight Control Centers.

Operating income for the fourth quarter of 2011 was $1.5 million compared to $5.2 million in the same period a year ago. The operating margin decreased to 2.2% compared to 8.3% last year.  The decrease in operating income is due to the previously described increase in selling, general and administrative expenses partially offset by the increase in gross profit.

Net income for the fourth quarter of 2011 was $1.2 million or $0.08 per diluted share, compared to net income of $3.4 million or $0.23 per diluted share for the comparable period last year. The decrease in profitability for the fourth quarter of 2011 is primarily a result of the expansion of the corporate Medifast Weight Control Center model.  

Fiscal Year 2011

For the fiscal year ended December 31, 2011, Medifast reported a net revenue increase of 16% to $298.2 million from net revenue of $257.6 million in 2010.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response, and Medifast Weight Control Centers, contributed to this year-over-year revenue increase.

Gross profit for the full year 2011 increased 17% to $224.5 million, compared to $192.5 million in the same period last year. The Company's gross profit margin increased 60 basis points to 75.3% in 2011 versus 74.7% in 2010.

Fiscal year 2011 operating income was $27.4 million compared to $31.6 million in the same period a year ago. The Company's operating margin was 9.2% versus 12.3% for the same period last year.  The decrease in profitability in 2011 is primarily a result of the expansion of the corporate Medifast Weight Control Center model as the Company increased expertise in key areas to build the internal infrastructure to open 31 new Medifast Weight Control Centers in 2011. Hires included regional trainers, district managers, area managers, mobile managers, dieticians, HR recruiters, operations support, and marketing. In addition, increased corporate center startup costs reduced overall profitability during the year as compared to 2010.  

In 2011, the Company recorded $9.1 million in income tax expense or an effective rate of 33% as compared to $12.1 million in income tax expense or an effective tax rate of 38.1% last year. The decline in the effective tax rate was a result of extensive tax planning and reconciliations performed by the Company.

Net income for the fiscal year 2011 was $18.5 million, or $1.31 per diluted share, compared to net income of $19.6 million or $1.35 per share for the comparable period last year.

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $73.4 million and working capital of $43.7 million as of December 31, 2011.  Cash, cash equivalents, and investment securities were $33.8 million for the fiscal year of 2011.

Outlook

The Company expects first quarter 2012 net revenue to increase in the range of 16% to 19% or $86.5 to $88.5 million.

The Company anticipates a tax rate of 35 to 36% in fiscal 2012.

Earnings per diluted share are expected to be in the range of $0.36 to $0.38 based on an average weighted diluted share count of 13.8 to 13.9 million.

In the first quarter of 2012, the Company plans to open 3 to 5 new Medifast Weight Control Centers in new and existing markets with expectations to open 25 to 30 new corporate centers by year end. In 2012, the Company is focused on improving operational effectiveness and efficiency in both new and existing corporate centers as they balance sales growth and profitability. The Company will continue to review their annual store growth rate, based on their view of internal and external opportunities and challenges in the marketplace.

Conference Call Information

The Company will host a conference call to discuss these results with additional comments and details. The conference call is scheduled to begin today, March 13, 2012 at 4:30 p.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Medifast's website at www.choosemedifast.com, and will be archived online through March 27, 2012. In addition, listeners may dial (877) 705-6003.

A telephonic playback will be available from 7:30 p.m. ET, March 13, 2012, through March 27, 2012. Participants can dial (877) 870-5176 to hear the playback and enter passcode 388837.

MED-G

About Medifast

Medifast, Inc. (NYSE: MED) is a leading United States manufacturer and provider of clinically proven portion-controlled weight-loss programs. Medifast has been recommended by over 20,000 doctors and used by over one million clients since 1980. The Company is committed to enriching lives by providing innovative choices for lasting health. Medifast programs have been proven effective through studies by researchers from major university teaching hospitals. The company sells its products and programs via four unique distribution channels: 1) the web and national call centers, 2) the Take Shape for Life personal coaching division, 3) medically supervised Medifast Weight Control Centers, and 4) a national network of wholesale physicians and medical practices. Medifast was founded in 1980 and is located in Owings Mills, Maryland. For more information, please visit http://www.choosemedifast.com.

Forward Looking Statements

Please Note: This release contains "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. These forward-looking statements generally can be identified by use of phrases or terminology such as "intend" or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. Medifast believes this release should be read in conjunction with all of its filings with the United States Securities and Exchange Commission and cautions its readers that these forward-looking statements are subject to certain events, risks, uncertainties, and other factors. Some of these factors include, among others, Medifast's inability to attract and retain independent Associates and Members, stability in the pricing of print, TV and Direct Mail marketing initiatives affecting the cost to acquire customers, increases in competition, litigation, regulatory changes, and its planned growth into new domestic and international markets and new channels of distribution. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward- looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this release, as well as those set forth in its latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q, and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K. All of the forward-looking statements contained herein speak only as of the date of this release.









MEDIFAST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2011 and 2010












2011


2010








ASSETS







Current assets:






Cash and cash equivalents



$          14,262,000


$         17,165,000

Accounts receivable-net of allowance for sales returns and doubtful accounts




     of $504,000 and $237,000


1,477,000


623,000

Inventory




19,969,000


19,534,000

Investment securities



19,538,000


17,271,000

Income taxes, prepaid



5,434,000


3,266,000

Prepaid expenses and other current assets


2,251,000


2,108,000

Deferred tax assets



1,055,000


703,000

    Total current assets



63,986,000


60,670,000








Property, plant and equipment - net


38,852,000


30,589,000

Trademarks and intangibles - net


1,003,000


1,072,000

Other assets




1,824,000


1,728,000









    TOTAL ASSETS


$        105,665,000


$         94,059,000








LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:






Accounts payable and accrued expenses

$          18,830,000


$         15,020,000

Current maturities of long-term debt and capital leases

1,426,000


944,000

    Total current liabilities



20,256,000


15,964,000








Other liabilities






Long-term debt, net of current portion


3,337,000


4,648,000

Capital leases, net of current portion


914,000


207,000

Deferred tax liabilities



7,756,000


1,284,000

    Total liabilities



32,263,000


22,103,000








Stockholders' Equity:






Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding)

-


-

Common stock; par value $.001 per share; 20,000,000 shares authorized;




     15,510,185  and 15,431,101 issued and outstanding, respectively

16,000


16,000

Additional paid-in capital



36,076,000


32,938,000

Accumulated other comprehensive income

396,000


240,000

Retained earnings



60,658,000


42,117,000

Less: cost of 1,458,908 and 368,908 shares of common stock in treasury

(23,744,000)


(3,355,000)

Total stockholders' equity



73,402,000


71,956,000








TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$        105,665,000


$         94,059,000





MEDIFAST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2011 and 2010

(in thousands, except per share data)


















2011



2010












Revenue

$               298,189



$            257,552




Cost of sales

(73,693)



(65,083)




Gross profit

224,496



192,469












Selling, general, and administrative expenses

(197,114)



(160,829)












Income from operations

27,382



31,640












Other income (expense):








    Interest expense

(102)



(111)




    Interest and dividend income

421



385




    Other

(21)



(222)





298



52












Income before income taxes

27,680



31,692




Provision for income taxes

(9,139)



(12,081)












Net income

$                 18,541



$              19,611












Basic earnings per share

$1.33



$1.39




Diluted earnings per share

$1.31



$1.35












Weighted average shares outstanding -








    Basic

13,965,018



14,082,213




    Diluted

14,198,495



14,572,921







SOURCE Medifast, Inc.



RELATED LINKS
http://www.choosemedifast.com

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